The opinion of the court was delivered by: Honorable B. Lynn Winmill Chief U. S. District Judge
MEMORANDUM DECISION ANDORDER
This case was filed for relief under the Perishable Agricultural Commodities Act, 7 U.S.C. § 499a et seq. ("PACA"). Many creditors have filed claims and there have been various objections filed to those claims. The Court will examine each claim in light of the objections, and determine whether the claim can be resolved as a matter of law or must await a further hearing.
Congress passed PACA "to prevent unfair business practices and promote financial responsibility in the fresh fruit and produce industry." See Boulder Fruit Exp. & Heger Organic Farm Sales v. Transp. Factoring, Inc., 251 F.3d 1268, 1270 (9th Cir. 2001). Prior to PACA, sellers of perishable commodities were unsecured creditors who often collected nothing from defaulting buyers because secured lenders like banks were first in line. PACA changed that by imposing a trust in favor of sellers of perishable commodities on the inventories of those commodities and their sale proceeds. See 7 U.S.C. § 499e(c)(2). The buyer holds the perishable commodities and their sales proceeds in trust for the seller and is not allowed to use those proceeds for any purpose until the seller is paid in full. See Sunkist Growers, Inc. v. Fisher, 104 F.3d 280, 281 (9th Cir.1997). Through this trust, the sellers of the commodities maintain a right to recover against defaulting buyers superior to all creditors, including secured creditors. Boulder Fruit, 251 F.3d at 1270-71.
Congress specifically granted to federal courts jurisdiction over "actions by [PACA] trust beneficiaries to enforce payment from the trust." See 7 U.S.C. § 499e(c)(5)(i). Produce Alliance has brought such an action to enforce payment from a PACA trust imposed on defendant S&G, a purchaser of fresh produce from Produce Alliance. Produce Alliance alleged that it had not been paid by S&G for PACA produce, and that S&G was in the process of going out of business.
On May 26, 2011, this Court entered a Temporary Restraining Order prohibiting the dissipation of any assets of S&G. On June 15, 2011, this Court entered a Claims Order that established an escrow account -- known as a PACA trust -- to be funded by the liquidation of S&G's assets. The Claims Order also set up a claims procedure so that PACA creditors could file claims on the PACA trust. See Claims Order (Dkt. No. 25).
The Claims Order required any party with a PACA claim, seeking payment from the PACA trust, to file a complaint in intervention and a PACA proof of claim along with all supporting documents by certain deadlines. Any objection to these claims had to be filed by a certain deadline, and had to contain "in detail the legal and factual basis for the objection." See Claims Order (Dkt. No. 25) at ¶ 18 (emphasis in original).
As of January of 2012, the PACA trust contained $577,015.61, while the claims against the trust totaled $1,660,081.12. The parties agreed that an interim distribution could be made to claimants whose PACA rights were undisputed. Accordingly, the Court distributed $405,370.43 from the PACA trust to those PACA claimants. See Order of First Interim Distribution (Dkt. No. 170). In an attempt to increase the trust funds, plaintiffs filed motions seeking to add claims that D.L Evans Bank and Sheppard Transportation improperly received assets from the PACA trust and must return those assets to the trust. The Court granted those motions to amend. See Memorandum Decision (Dkt. No. 169).
Before the Court now are numerous claims and objections thereto. The Claims Order generally provides for a hearing to resolve those claims that are the subject of an objection, timely filed. See Order (Dkt. No. 25) at ¶ 21. Some claims, however, can be resolved entirely as a matter of law, and a hearing is unnecessary. The Court will consider each remaining claim that has been challenged by an objection, and determine whether it can be resolved as a matter of law or must await a hearing.
The Court's inquiry here is limited. The Court is not determining generally whether these claims are valid and payable. The Court is only determining whether a claim is a valid PACA claim -- that is, whether the claim seeks payment for the delivery of perishable agricultural commodities protected by PACA. Only PACA claims can be paid from the PACA trust. Boulder Fruit, 251 F.3d at 1270-71. By denying a claim, the Court is holding that it cannot be paid from the PACA trust; the Court is not holding that the claim is invalid in any broader sense.
Spokane Produce filed a complaint in intervention seeking $69,534.48 from the PACA trust. See Complaint in Intervention (Dkt. No. 76). Plaintiff Produce Alliance objected to the claim on the ground that Spokane Produce's invoices failed to name S&G as required by PACA.
Spokane Produce's Vice-President and Treasurer, Ramona Higashi, filed her Declaration explaining the arrangement between Spokane Produce and S&G. See Higashi Declaration (Dkt. No. 131). She alleges that Spokane Produce delivered fresh produce to schools at S&G's direction pursuant to a contract S&G had with the federal government to organize these deliveries. Id. at p. 2. At the time of delivery, Spokane Produce would give the school a copy of its invoice, and then e-mail a copy of the same invoice to S&G. Id. at pp. 2-3. Until it stopped payments, S&G paid Spokane Produce on the e-mailed invoices. Id. at p.3.
Produce Alliance does not dispute this description of the business arrangement, but argues that Spokane Produce's invoices were not addressed to S&G -- as required by the PACA statute -- but rather to various schools and other entities. Because the name of S&G is completely absent from the invoices, Produce Alliance argues, Spokane Produce failed to follow the statutory prerequisites for preserving its PACA rights.
Under PACA, Spokane Produce was required to provide notice to S&G that it was preserving its PACA rights in one of two forms: (1) a written notice within thirty calendar days after payment was due, see 7 U.S.C. § 499e(c)(3) ("the written notice method"), or (2) a printed statement on its regular invoices. See 7 U.S.C. § 499e(c)(4) ("the invoice method").
Spokane Produce relied on the second method, the invoice method. Proper notice under the invoice method consists of three independent requirements set forth in 7 U.S.C. § 499e(c)(4). First, the bill or invoice statements must be "ordinary and usual," meaning "communications customarily used between parties to a transaction in perishable agricultural commodities in whatever form, documentary or electronic, for billing or invoicing purposes." 7 C.F.R. § 46.46(5). Second, the payment period must appear on the bill or invoice if it differs from the default payment period established by the regulations. See 7 U.S.C.A. § 499e(c)(4). Third, sellers (like Spokane Produce) must print on the bill or invoice a statement of intent to preserve the trust, the precise language of which is provided in the statute. See 7 U.S.C. § 499e(c)(4).
Produce Alliance does not take issue with the second and third requirements, but argues that the first requirement was not met because it is not "ordinary and usual" for the invoice to leave off the name of the buyer -- in this case S&G. Produce Alliance cites cases holding that PACA requires the buyer's name to be on the invoice in order for the seller to preserve his PACA rights against that buyer. For example, in A&J Produce Corp. v. Chang, 385 F.Supp. 2d 354 (S.D.N.Y. 2005), the seller's invoices left off the name of the buyer against whom the seller was seeking to impose a PACA trust. In addition, there was no evidence that the seller provided the invoices to the buyer. Under those circumstances, the court held that "[w]ithout the name of the buyer, the invoices fail to fulfill the invoice method's intent; i.e. notice. Accordingly, [seller] failed to provide notice to the [buyer] pursuant to the invoice method and, therefore, [seller] failed to preserve their [PACA] trust rights. Id. at 361; see also In re Marvin Properties, Inc, 854 F.2d 1183, 1186 (9th Cir. 1988) (holding that "[t]he statute clearly requires the seller to give written notice directly to the buyer").
Here, unlike A&J Produce, there is evidence not only that the buyer received the invoices but that it paid them as well. There is also evidence that the invoices contained the statutorily required language preserving PACA rights, at least creating an issue of fact as to whether S&G was on notice that Spokane Produce was asserting its PACA rights.
While the PACA regulations do provide that one way of preserving PACA benefits is to name the buyer in the invoice, see 7 C.F.R. § 46.46(f)(l ), the regulations also provide for an "alternate method" that does not require naming the seller. Id. at § 46.46 (f)(3). Under this alternate method, it is enough if the seller's invoice contains the statutorily-required PACA language (citing the statute and ...