Summary of a Recent
Judicial Development in
Perishable Agricultural Commodities Act

Additional Facts Needed to Determine Effect of PACA Trust
Waiver by Upstream Seller on Downstream Protection

Eric H. Foy
National AgLaw Center Research Associate

Summary of Decision

In 11 R Sales, Inc. v. Yarto, No. CV-07-3006-FVS, 2008 WL 4279577 (E.D. Wash. Sept. 15, 2008), the United States District Court for the Eastern District of Washington found that the record was insufficiently developed to determine whether the waiver of Perishable Agricultural Commodities Act of 1930 (PACA) trust protection by plaintiffs, producers of perishable agricultural commodities, barred WashEx, a downstream seller of perishable agricultural commodities, from asserting PACA protection for the same commodities. Defendant, Yarto International Trading Company (YITC), asserted that once PACA protection was waived by an upstream seller, it could not be recreated downstream. Due to an insufficiently developed record, the court denied each party's motion for summary judgment.

Background

Plaintiffs were sellers of perishable agricultural commodities. Id. at *3. Defendant, Washington Export, LLC (WashEx), was in the business of purchasing fruit from plaintiffs and reselling it downstream. Id. Defendant YITC, a trading company, regularly purchased perishable agricultural commodities from WashEx. Id. YITC relied on a line of credit from Wells Fargo to finance its operation, but in 2006, Wells Fargo began restricting YITC's access to credit, which put the trading company in significant financial distress. Id. at *3-4. To alleviate the financial strain, YITC applied to General Electric for a new line of credit. Id. at *4. Heated disagreements arose between members of YITC's management team over financing, which led to splintered decision making. Id. at *4-5.

In October 2006, YITC's president and CEO entered into a number of contracts intended to server their relationship with YITC, to determine who was responsible for payment of WashEx's debts to its creditors, and to begin making substantial payments to the plaintiffs. Id. at *5. Additionally, they agreed to pay a significant portion of WashEx's debts. Id. The contracts did not resolve the problems as they expected. Id. at *6. Disputes arose concerning whether YITC's president and CEO were fulfilling their contractual obligations under the October contracts. Id. In response, plaintiffs and WashEx filed suit in January 2007. Id. While litigation was pending, plaintiffs began negotiating with WashEx. Id. In exchange for significant concessions, plaintiffs agreed to refrain from their collection activities against WashEx. Id. Thereafter, plaintiffs and WashEx brought the instant action seeking relief under PACA. Id. at *10-11.

Arguments

Plaintiffs and WashEx claimed that YITC received the perishable agricultural commodities subject to a PACA trust because WashEx complied with the statutory requirements necessary to create one. Id.

YITC argued that a single PACA trust came into existence when plaintiffs sold the commodities to WashEx; however, plaintiffs waived PACA protection by giving YITC's former president and CEO more than 30 days to pay. Id. They argued that once plaintiffs extended payment terms beyond 30 days, the PACA trust dissolved, and could not be recreated downstream by WashEx. Id.

Analysis and Holdings

Rather than granting any motions for summary judgment, the court determined that the record was not adequately developed. Id. at *12. The court found that there were genuine issues of material fact that needed to be adjudicated regarding whether plaintiffs' waiver of PACA trust protection barred trust protection for WashEx as a downstream seller of perishable agricultural commodities. Id. at *12.

The case was decided on September 15, 2008.