Summary of a Recent
Judicial Development in
Perishable Commodities

PACA Claimant Allowed to
Collect Attorney's Fees

Harrison M. Pittman
Staff Attorney

The United States Court of Appeals for the Ninth Circuit has ruled that a Perishable Agricultural Commodities Act ("PACA") statutory trust claimant was allowed to recover attorneys' fees from assets of a statutory trust as part of its PACA trust claim, despite the fact that there were not sufficient funds in the trust to fully satisfy each of the PACA claimants' claims. Middle Mountain Land and Produce Inc. v. Sound, No. 01-35471, 2002 WL 31319522 (9th Cir. Oct. 17, 2002). The Ninth Circuit held that the claimant could recover attorneys' fees based on the plain language of the PACA, 7 U.S.C. §§ 499a-499t. See id. at *1-3. The court remanded the matter to the district court, however, to determine whether the PACA claimant had a valid contractual claim that allowed it to recover attorneys' fees from the trust assets. See id. at *4-5. The Ninth Circuit also affirmed the district court's decision not to award the PACA claimant prejudgment interest. Id. at *4. These issues presented matters of first impression for the Ninth Circuit. See id. at *1.

Congress enacted the PACA in 1930 "to suppress unfair and fraudulent business practices in the marketing of fresh and frozen fruits and vegetables." Id. at *2 (citing Pub. L. No. 98-273, § 1, 98 Stat. 165 (1930)). The Ninth Circuit noted that the PACA, as originally enacted, was not able to provide adequate protection to sellers of perishable agricultural commodities. See id. For instance, the PACA did not protect produce suppliers in situations where the supplier delivered produce to a buyer that became insolvent and failed to pay for the delivered goods. See id. In these situations, "the seller would have 'no meaningful possibility' of receiving its contractual right to payment." Id. (citations omitted). Congress addressed this concern in 1984 by amending the PACA to create a statutory trust in favor of unpaid sellers. See id. (citing 7 U.S.C. § 499e).

The Ninth Circuit explained that the statutory trust "impresses a trust on the perishable agricultural commodities received by the purchaser, all inventories of food or other products derived therefrom, and receivables or proceeds from the sale of such commodities and products." Id. (citing § 499e). The court also explained that the trust "automatically arises in favor of a perishable agricultural commodities seller upon delivery of perishable agricultural commodities and is for the benefit of all unpaid suppliers or sellers involved in the transaction until full payment of the sums owing in connection with the transaction have been received." Id. (citing § 499e(c)(2) and In re Milton Poulos, Inc., 947 F.2d 1351 (9th Cir. 1991)). The court stated that the statutory trust "elevate[s] the claims of unpaid perishable agricultural commodities suppliers over all other creditors of the bankrupt estate with regard to funds in the PACA trust." Id.

J.R. Simplot Company ("Simplot") was among several suppliers of perishable agricultural commodities that delivered produce to Sound Commodities ("Sound"). See id. at *1. Sound became insolvent and failed to make full payment to all of its suppliers, including Simplot. See id. Consequently, these suppliers filed claims to collect payment from the assets of the statutory trust held by Sound. See id. Simplot filed a PACA claim "for amounts due on unpaid invoices, including outstanding attorneys' fees and interest." Id. Simplot was the only supplier that requested attorneys' fees and interest. See id.

The court-appointed receiver recommended that the district court order a pro rata distribution of the PACA assets to each of the claimants because there were not enough trust assets to fully pay each of the suppliers' claims. See id. The receiver also objected to "the portion of Simplot's claim for attorney's fees and prejudgment interest and noted that it would be inequitable to grant Simplot attorneys' fees and interest and thereby reduce the awards of other PACA claimants." Id.

The district agreed with the receiver and rejected Simplot's claims for attorneys' fees and interest. See id. Simplot appealed the district court's decision to the Ninth Circuit. See id. Simplot asserted that it was entitled to recover attorneys' fees and interest from the trust assets based on language it included in its invoice statements in each transaction with Sound. See id. Simplot's invoices stated that "'[i]n the event collection action becomes necessary Buyer agrees to pay all costs of collection, including attorneys' fees' and 'amount past due will be subject to a finance charge of 1.5% per month (18% annual rate) until paid in full.'" Id. at *5 n.2.

The Ninth Circuit began its analysis by examining the plain language of the PACA. See id. at *1 (citing Alaska Department of Envtl. Conservation v. United States Environmental Protection Agency,) 298 F.3d 814, 818 (9th Cir. 2002)). The court explained that its task was "'to give effect to the will of Congress, and where its will has been expressed in reasonably plain terms, that language must ordinarily be regarded as conclusive.'" Id. (quoting Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 570 (1982)). The court also explained that it is obligated to give statutory language its plain meaning, because "'[w]here . . . Congress intentionally and unambiguously drafted a particularly broad definition, it is not our function to undermine that effort.'" Id. (quoting Commodity Futures Trading Comm'n v. Frankwell Bullion Ltd., 99 F.3d 299, 303 (9th Cir. 1996)).

Simplot argued that it had a contractual right to attorneys' fees and interest based on the PACA's plain language. See id. Simplot's specific argument was that "the words 'in connection with' included contractual rights to attorneys' fees and interest because Congress could have narrowly defined the scope of a PACA claim but instead chose to draft the statute broadly to include all sums owing 'in connection with' the perishable agricultural commodities transaction." Id. (emphasis supplied).

The Ninth Circuit agreed with Simplot's position, stating that the phrase "'in connection with' encompasses not only the price of the perishable agricultural commodities but also additional related expenses, including contractual rights to attorneys' fees and interest, in a PACA claim." Id. The court stated that even in those instances where there are insufficient funds to fully compensate all PACA claimants, "the plain language of the statute does not exclude recovery of contractual rights to attorneys' fees and interest that are due in connection with the transaction that is the subject of their PACA trust claim." Id. at *2.

Although the court determined that the plain language of the PACA allowed Simplot to recover attorneys' fees and interest from PACA trust assets, it also examined the legislative history of the PACA. See id. The court explained that "[t]here is a strong presumption that the plain language of the statute expresses congressional intent, 'rebutted only in rare and exceptional circumstances, when a contrary legislative intent is clearly expressed.'" Id. (quoting Ardestani v. I.N.S., 502 U.S. 129, 135-36 (1991) and citing United States v. Ron Pair Enters., Inc., 489 U.S. 235, 242 (1989)).

The Ninth Circuit stated that "it cannot be contended seriously that interpreting PACA claims to include contractual rights to attorneys' fees and interest under the "in connection with" language of the statute is contrary to the statute's purpose, absurd, or 'demonstrably at odds with the intentions of the drafters.'" Id. at *3. The court noted that because the PACA, as originally enacted, was not able to completely protect sellers of perishable agricultural commodities in instances where the buyer became insolvent and did not pay for the delivered produce, Congress amended the PACA in 1984 to protect unpaid perishable agricultural commodities suppliers and sellers from these situations. Id. The court also noted that this amendment "elevated the claims of unpaid perishable agricultural commodities suppliers over all other creditors of the bankrupt estate with regard to funds in the PACA trust." Id. The court concluded that "[i]t is unlikely that Congress, in enacting a statute to provide better insolvency remedies to perishable agricultural commodities sellers, wanted selectively to exclude legitimate portions of a covered contract from the scope of a PACA claim." Id. The court added that "[t]here is no evidence [in the legislative history] that Congress intended to exclude contractual rights to attorneys' fees and interest as outside the scope of the PACA claim." Id.

Next, the court addressed the district court's concern that it would be inequitable to allow Simplot to recover attorneys' fees and interest because its PACA claim would be disproportionately larger than the other PACA claimants' claims. See id. The Ninth Circuit explained that this concern "misses the point that PACA protects all that is due and owing in connection with the perishable agricultural commodity transaction. If one particular supplier, here Simplot, gained a contractual right greater than that negotiated by others, then it is not unfair for such a supplier to gain the benefit of its superior foresight or industry." Id.

The Ninth Circuit did not express an opinion as to whether Simplot's asserted contractual claim was valid because that was "an issue not decided by the district court." Id. Thus, the court remanded the matter to the district court to determine "if the invoices and related communications created a contractual right to attorneys' fees and interest." Id.

Although the Ninth Circuit stated that the plain language of the PACA allowed a claimant to recover interest from trust assets, it affirmed the district court's decision to deny Simplot to recover prejudgment interest. See id. at *5. The court noted that "courts have uniformly agreed that a district court has broad discretion to award prejudgment interest to PACA claimants under 7 U.S.C. § 499e(c)(2). Id. at *5. (citing Endico Potatoes, Inc., v. CIT Group/Factoring, Inc., 67 F.3d 1063, 1-71-72 (2d. Cir. 1995) (stating that a court has broad discretion in fashioning an award of prejudgment interest to PACA claimants); Morris Okun, Inc. v. Zimmerman, 814 F.Supp. 346, 351 (S.D.N.Y. 1993); Rodgers v. United States, 332 U.S. 371, 373 (1947)). The Ninth Circuit stated that although it had not "previously expressed a view on this subject, we agree with the district court and conclude that a district court may award reasonable prejudgment interest to PACA claimants if such an award is necessary to protect the interests of PACA claimants, and that such an award absent contract is discretionary." Id.

This case was decided on October 17, 2002; this summary was prepared November, 2002.