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
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
"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.