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Last PACA Trust claims paid in Salyer American case

by Tim Linden | June 10, 2011

In what is still an unpublished decision, a judge sided with growers and ordered the receiver in the Salyer American Fresh Foods case to pay the final PACA Trust claims.

The case arose in 2009, when Salinas, CA-based Salyer American was placed into receivership and closed its doors. Soon after, 16 PACA Trust claims were filed, with the receiver filing objections to all 16. Under the provisions of the PACA Trust, produce creditors essentially are first in line to get paid in the event of a bankruptcy or a company dissolution, as was the case with Salyer American.

Patricia Rynn, partner in the law firm of Rynn & Janowski, which represented the majority of the PACA claimants, said that eventually about half of the PACA claimants were paid but that the receiver continued to argue that the others did not deserve PACA Trust protection because they had extended payment terms beyond the statutory requirement of 30 days.

In fact, there were separate marketing agreements between Salyer American and many of its growers calling for “final” payment to the grower 45 days after final sale.

The receiver argued that this wording violated the PACA Trust provision and invalidated the claims of those growers, and ultimately would cause them to stand in line behind the banks for payment of debt.

Ms. Rynn argued that the marketing agreements between Salyer American and the growers did not mean all payments made to the grower during the season would be extended to 45 days but rather only the final reconciliation payment at the end of the year, and thus the agreement did not violate the terms of the PACA Trust. The judge agreed and awarded 10 percent interest to the growers, who had to wait about two years for payment.

Ms. Rynn said that the significance of not publishing the decision means it cannot be used as a precedent in future cases.

“We are still communicating with the judge and hope the decision will be published,” she said. “We need these decisions [published] to create a foundation upon which to build so we don’t have to argue the same issue over and over again.”

The veteran PACA attorney said that the case does show the effectiveness of the PACA Trust and how produce creditors once again received payment in full because of that law.

However, she added that because Salyer American went into receivership rather than filing bankruptcy protection, the process was more drawn out and layers were added that would not have existed in a bankruptcy case. She indicated that it behooves produce creditors to encourage a bankruptcy filing in similar cases in the future.