view current print edition




Court confirms price-after-sale arrangements

by Tim Linden | June 13, 2010
A California court has ruled that a price-after-sale arrangement is a legitimate way to do business in the fruit and vegetables industry and is different than a consignment sale, which, according to California law, has much more burdensome accounting requirements.

The case, which has been winding though the courts for more than a half- dozen years, involved a California pomegranate grower, his local marketer and terminal market wholesalers around the country.

Lew Janowsky, a partner in the Newport Beach, CA-based law firm Rynn & Janowsky, represented the terminal market operators and called the decision a "very significant" affirmation of the way the produce industry operates.

Russell Van Rozeboom, an attorney who represents Fresno, CA-based Rast Produce, agreed with Mr. Janowsky and said that if the plaintiff had prevailed, it could have changed the way some specialty fruit is bought and sold in the United States.

The facts of the case, as spelled out in the decision, involved a marketing agreement between Rast Produce and grower Jose Mendoza (d/b/a San Joaquin Labor Services) covering pomegranate sales in 2001 and 2002. Although there were some technical differences between 2001 and 2002, Mr. Mendoza basically used Rast Produce to market his crop, and in a written contract, the grower gave the marketer the right to market that product in any manner it desired. The marketer sold much of the fruit through terminal market operators across the country on a price-after-sale arrangement.

In 2003, Mr. Mendoza filed a lawsuit against Rast, as well as the many wholesalers the firm used, claiming that it was not paid a fair price for its pomegranate crop. He argued that a price-after-sale arrangement is the same as a consignment sale, and thus is subject to the same requirements under California's Commission Merchant Law.

That law has strict accounting practice requirements absent from a price- after-sale arrangement, according to Mr. Van Rozeboom.

Mr. Janowsky attempted to have the 12 terminal market receivers dismissed from the case, arguing that price after sale is a common practice and puts them in the position of being buyers, not commission merchants, hence they are not subject to the provisions of the California law.

The court documents spell out that price after sale is often used as an acceptable way to sell undersized or less-than-top-quality product through wholesale market venues. The product is inventoried at the terminal market operation and is often sold in small lots to many small buyers. A price is typically negotiated between the point-of-origin marketer and the destination wholesaler after a significant percentage of fruit has been sold and the average price can be determined.

Mr. Janowsky said that both a Court of Appeals and the original Superior Court did agree with his arguments, and in a decision filed June 2 in Tulare County Superior Court, the terminal market receivers were dismissed from the case.

"The court ruled that a price after sale is not equivalent to a consignment arrangement," Mr. Janowsky said. "This is a big victory for my clients. If the court would have ruled the other way, it would have opened the flood gates to this type of lawsuit."

Mr. Van Rozeboom said that ultimately such a ruling would have worked against smaller growers of specialty fruits because it would have taken away an outlet for the sale of their produce. He said that the accounting requirements in a consignment sale for California product are so burdensome that terminal market operators will not take the fruit for sale on that basis.

Although the terminal operators have been dismissed from the case and Rast Produce and Mr. Mendoza had earlier agreed on a monetary settlement with regard to the sale price of the fruit, the case is not over as there are still other non-related issues to be litigated.

Matthew McInerney, executive vice president of Western Growers Association, reviewed the decision and said that it reaffirmed the need for written contracts between a grower and a marketer on their expectations with regard to the sale of the product.

Regardless of what sales method is used - f.o.b., consignment or price-after- sale - Mr. McInerney said that it is always the best course of action for both the grower and the marketer to lay out their expectations in writing. He added that the California court's decision affirming that price-after-sale is different than a consignment sale is consistent with PACA rulings in the past.