Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-1_09-cv-00901/USCOURTS-caed-1_09-cv-00901-13/pdf.json

Nature of Suit Code: 891
Nature of Suit: Agricultural Acts
Cause of Action: 07:499 Agricultural Commodities Act

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IN THE UNITED STATES DISTRICT COURT FOR THE

EASTERN DISTRICT OF CALIFORNIA

KINGSBURG APPLE PACKERS INC. )

D/B/A KINGSBURG ORCHARDS, et. al. )

)

Plaintiffs, )

)

v. )

)

BALLANTINE PRODUCE Co., Inc., et. al., )

)

Defendants. )

____________________________________)

NO. 1:09-CV-901-AWI-JLT

ORDER ON WAGON WHEEL’S

MOTION TO DETERMINE THE

VALIDITY OF PACA CLAIMS

(Doc. No. 117)

On October 28, 2009, this court issued an order that directed Wagon Wheel Farms, Inc.

(“Wagon Wheel”) to file a motion with the court to determine the validity of its Perishable and

Agricultural and Commodities Act (“PACA”) claims. See Doc. No. 116. Wagon Wheel

complied and filed its motion the same day. Kingsburg Group and Bank of the West oppose the

motion and assert that Wagon Wheel’s claims are invalid because Wagon Wheel’s Notice of

Intent to Preserve Trust Benefits (“Notice of Intent”) was prematurely served before any trust

rights had been created and because the Notice of Intent did not contain certain information that

is required by applicable federal regulations. For the reasons described below, the court finds

that Wagon Wheel failed to preserve its PACA trust claims.

Case 1:09-cv-00901-AWI-JLT Document 147 Filed 02/09/10 Page 1 of 8
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FACTUAL BACKGROUND

Wagon Wheel alleges that it sold and/or delivered to Ballantine Produce Co.

(“Ballantine”), a packer and commission merchant, perishable agricultural commodities. See

Wagon Wheel Proof of Claim dated July 24, 2009. Wagon Wheel alleges that it was not licensed

by the United States Department of Agriculture (“USDA”) as a PACA licensee during the period

applicable to the transactions. Wagon Wheel alleges that Ballantine acted as a grower’s agent for

Wagon Wheel. Wagon Wheel alleges that it delivered harvested tree fruit to Ballantine, who

would then sell the fruit on behalf of Wagon Wheel (as its commission merchant). Wagon

Wheel shipped produce to Ballantine between October 16 and December 3, 2008. See

Kingsburg Opposition at page 5. Wagon Wheel alleges that Ballantine received and accepted the

produce. Wagon Wheel appears to have received an accounting from Ballantine for those

shipments on or about April 13, 2009. See Kingsburg Opposition at page 5. The accounting

reflected commodities sold and the amount outstanding. See Kingsburg Opposition at page 5. 

Wagon Wheel contends that a May 1, 2008 letter (“May 1, 2008 Letter”) from Craig Sorensen,

President for Wagon Wheel, addressed to Ballantine and David Albertson, served as a Notice of

Intent, preserving its PACA trust interest pursuant to 7 U.S.C. §499e(c)(3). The May 1, 2008

Letter, provides, in pertinent part: 

You have asked my family to deliver our 2008 Tree Fruit crop to Ballantine

Produce Co... My family (Wagon Wheel Farms) now gives you, David Albertson

and Ballantine Produce, this written notice to preserve Wagon Wheel Farms’

P.A.C.A. trust benefits for the 2008 harvest. Please inform your staff and banking

institutions about Wagon Wheel Farms’ high priority P.A.C.A. lien to proceeds

from the sale of Wagon Wheel Farms’ fruit. This lien will exist indefinitely until

Wagon Wheel Farms is paid in full.

See Exhibit A to Wagon Wheel Motion to Determine Validity of PACA Claims. Wagon Wheel

alleges that the total amount past due and unpaid from Ballantine totals $1,018,306.22, all of

which qualifies for PACA trust protection. 

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DISCUSSION

I. PACA

Congress enacted PACA in 1930 with the intent of “preventing unfair business practices

and promoting financial responsibility in the fresh fruit and produce industry.” Sunkist Growers,

Inc. v. Fisher, 104 F.3d 280, 282 (9th Cir. 1997). Under PACA, a statutory trust is created in

favor of all unpaid suppliers or sellers of perishable agricultural commodities upon receipt of

such goods by a “commission merchant, dealer, or broker.” The PACA trust “was established 1

by Congress to protect sellers and suppliers of perishable agricultural commodities until full

payment of sums due have been received.” In re Southland + Keystone, 132 B.R. 632, 639 (9th

Cir. BAP 1991), (quoting In re Milton Poulos, Inc., 94 B.R. 648, 650 (Bankr. C.D. Cal. 1988)). 

The statute provides, in relevant part:

Perishable agricultural commodities received by a commission merchant, dealer,

or broker in all transactions, and all inventories of food or other products derived

from perishable agricultural commodities, and any receivables or proceeds from

the sale of such commodities or products, shall be held by such commission

merchant, dealer, or broker in trust for the benefit of all unpaid suppliers or sellers

of such commodities or agents involved in the transaction, until full payment of

the sums owing in connection with such transactions has been received by such

unpaid suppliers, sellers, or agents. 

7 U.S.C. §499e(c)(2). The PACA trust is a “nonsegregated floating trust” that applies to the

perishable “commodities, products derived therefrom, and any receivables or proceeds from their

sale in the hands of the commission merchant, dealer, o[r] broker.” H.R. REP. NO. 98-98-543,

at 2 (1983), reprinted in 1984 U.S.C.C.A.N. 405, 406.

Any supplier or seller of agricultural commodities who gives proper notice of its interest

in the PACA trust has a claim against the trust. In re Southland,132 B.R. at 639. PACA requires

the beneficiary to preserve its trust right by providing written notice of its intent to preserve the

trust within thirty days after the time payment is due. The PACA trust preservation provision

The term “received” means at “the time when the buyer, receiver, or agent gains 1

ownership, control, or possession of the perishable agricultural commodities.” See 7 C.F.R.

§46.36(a)(1).

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provides:

The unpaid supplier, seller, or agent shall lose the benefits of such trust unless

such person has given written notice of intent to preserve the benefits of the trust

to the commission merchant, dealer or broker within thirty calendar days (i) after

expiration of the time prescribed by which payment must be made, as set forth in

regulations issued by the Secretary, (ii) after expiration of such other time by

which payment must be made, as the parties have expressly agreed to in writing

before entering into the transaction, or (iii) after the time the supplier, seller, or

agent has received such notice that the payment instrument promptly presented for

payment has been dishonored. The written notice to the commission merchant,

dealer, or broker shall set forth information in sufficient detail to identify the

transaction subject to the trust. When the parties expressly agree to a payment

time period different from that established by the Secretary, a copy of any such

agreement shall be filed in the records of each party to the transaction and the

terms of payment shall be disclosed on invoices, accountings, and other

documents relating to the transaction.

7 U.S.C. §499e(c)(3). If a beneficiary does not comply with the notice requirements, it loses the

benefits of the PACA trust. See In re Marvin Properties, Inc., 854 F.2d 1183, 1186 (9th Cir.

1988) (“The language of section 499e(c)(3) is unambiguous on its face. It clearly states that the

seller shall lose the trust benefits unless ‘such person has given written notice of intent to

preserve benefits of the trust to the commission merchant, dealer, or broker and has filed such

notice with the Secretary....’”); see also In re Fresh Approach, Inc., 51 B.R. 412, 423 (Bankr.

N.D. Tex. 1985) (“Use of the words ‘shall lose’ and ‘preserve’ plainly refer to rights or interests

existing prior to perfection. The clear meaning of the preservation provisions is that a

beneficiary’s pre-existing beneficial interest would evaporate absent affirmative steps by such a

beneficiary to protect such interests. In short, the beneficial interest arises, by operation of law,

upon delivery to a dealer of qualifying produce, and said interest exists unless and until either the

claim is satisfied or the beneficiary fails to take the necessary steps to perfect.”). 

Thus, under the statutory language, a PACA trust is created, in favor of unpaid suppliers,

sellers, or their agents at the time the perishable commodities are received by a commission

merchant, dealer, or broker but, in order to preserve the PACA trust, the beneficiaries are further

required to provide written notice to the commission merchant, dealer, or broker in receipt of

those commodities within a specified time period. See 7 U.S.C. §§499e(c)(2), (c)(3). If the

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beneficiary, however, is a licensee, then it may perfect its PACA trust rights by including certain

statutory language on its invoices. See 7 U.S.C. §§499e(c)(4). Under the plain language of the

statute, it does not appear that a beneficiary that is not also a licensee can rely on invoices to

preserve its trust rights. See In re Enoch Packing Company, Inc. v. Joe Flores, 2007 WL

1589537, *4 (E.D. Cal. June 1, 2007). 

II. Wagon Wheel’s Arguments 

Wagon Wheel contends that it perfected its PACA trust rights when it sent the May 1,

2008 letter to Ballantine. Wagon Wheel argues that the letter complied with PACA’s statutory

timing requirements under 7 U.S.C. §499e(c)(3) and regulations under 7 C.F.R. §46.46(f)(1) . 

2

Wagon Wheel asserts that the requirements of 7 U.S.C. §499e(c)(3) that the trust notice be issued

within thirty days after expiration of when payment from buyer is due merely establishes the last

day when such notice may be given, and that there is no requirement that a seller must wait until

payment default by the buyer before issuing its Notice of Intent. See Wagon Wheel Reply at

page 2.

 Wagon Wheel also argues that Kingsburg Group’s interpretation of the PACA statute

and regulations means that a grower’s trust rights would depend on arbitrary elements of timing. 

Wagon Wheel contends that this interpretation would create a situation “where a grower using

the ‘invoice’ method of preserving his PACA trust rights (under 499e(c)(4) could have its rights

vitiated simply because the invoice he provided (with the requisite PACA trust language) arrived

7 C.F.R. §46.46(f)(1) provides that a Notice of Intent must include information, which 2

establishes for each shipment:

 (i) the names and addresses of the trust beneficiary, seller-supplier, commission

merchant, or agent and the debtor, as applicable,

(ii) the date of the transaction, commodity, invoice price, and terms of payment (if

appropriate),

(iii) the date of receipt of notice that a payment instrument has been dishonored (if

appropriate), and

(iv) the amount past due and unpaid.

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at the commission merchant hours, or even moments, before the commission merchant actually

took possession or control of the fruit itself.” See Wagon Wheel Reply at page 3. 

Lastly, Wagon Wheel argues that nothing in the PACA statute requires that the Notice of

Intent contain all the information set forth in the regulations and that the purpose of the notice

requirement was served because Ballantine was on notice that all of its transactions with Wagon

Wheel would be subject to PACA trust protection. 

III. Resolution

The court finds that Wagon Wheel failed to properly preserve its prospective trust rights

because their Notice of Intent/May 1, 2008 letter was sent five months before the creation of its

beneficial interests in the PACA trust assets.

[U]nder the statutory language, a PACA trust is created in favor of unpaid

suppliers, sellers, or their agents at the time the perishable commodities are

received by a commission merchant, dealer, or broker but, in order to preserve the

PACA trust, the beneficiaries are further required to provide written notice to the

commission merchant, dealer or broker in receipt of those commodities within a

specified time period.

See In re Enoch Packing Company, 2007 WL 1589537 at *4 (citing to 7 U.S.C.

§499e(c)(2), (c)(3)).

Wagon Wheel’s letter did not comply with 7 U.S.C. §499e(c) because it was prematurely

sent to Ballantine before a PACA trust interest had arisen given that Wagon Wheel had not

delivered the fruit, and Ballantine had not received the produce, at the time the letter was sent. 

Simply put, Wagon Wheel could not preserve an interest in a trust claim that did not exist. 

Additionally, Wagon Wheel did not preserve its trust assets after they delivered the produce to

Ballantine, because they did not serve a Notice of Intent within 30 days of the relevant payment

term as required by 7 U.S.C. §499e(c)(3). Because Wagon Wheel did not send any Notice of

Intent after the creation of its trust interest, Wagon Wheel lost the benefit of the PACA trust. See

In re Enoch Packing Company, 2007 WL 1589537 at *4; see also In re Fresh Approach, 51 B.R.

at 423.

Wagon Wheel cites to In re Richmond Produce, 112 B.R. 364, 369-370 (Bankr. N.D. Cal.

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1990) and In re W.L. Bradley Company, Inc., 75 B.R. 505, 511-512 (Bankr. E.D. Pa. 1987) for

the proposition that trust notices issued prior to any delinquent payments by the buyer are not

premature and are valid. See Wagon Wheel Reply at page 2. In re Richmond and In re W.L.

Bradley are distinguishable from the facts of this case because in both of those cases, the supplier

issued their trust notices after the delivery of their produce, but before the deadline for payment

by the buyer. Both courts found that a supplier’s beneficial interest in the PACA trust was

created upon delivery of the produce to the buyer, not when payment was due. See In re

Richmond, 112 B.R. at 369-370; In re W.L. Bradley, 75 B.R. at 511, 512. Once the suppliers’

interests were created in the PACA trust assets (i.e. the delivery of the produce), they had 30 days

from the applicable payment term to issue a Notice of Intent to preserve their PACA trust rights. 

Id. Because both suppliers served their Notices of Intent after the delivery of produce, their

claims were ruled valid PACA trust claims despite the fact that their Notices of Intent were

served before the applicable payment term expired. Id. 

In contrast, it is undisputed that Wagon Wheel served its Notice of Intent around five

months before Ballantine actually received the produce. Wagon Wheel could not preserve trust

rights that did not exist. Thus, Wagon Wheel failed to properly perfect its trust rights pursuant to

the applicable PACA statutes and regulations.3

Wagon Wheel argues that to interpret 7 U.S.C. §499e to mean that a grower’s rights do

not arise until the buyer takes possession of the produce means that a grower’s trust rights would

depend on arbitrary elements of timing. Wagon Wheel contends that this interpretation would

create a situation “where a grower using the “invoice” method of preserving his PACA trust

rights could have its rights vitiated simply because the invoice he provided (with the requisite

PACA trust language) arrived at the commission merchant hours, or even moments, before the

commission merchant actually took possession or control of the fruit itself.” See Wagon Wheel

The court notes that Wagon Wheel has not cited, and this Court’s research did not 3

uncover, any case law that holds that a grower can preserve its trust rights before the rights are

created. 

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Reply at page 3. 

The court is not persuaded by Wagon Wheel’s argument. Wagon Wheel’s example is

irrelevant because it does not address circumstances under which a non-licensed PACA grower

seeks to perfect its trust rights. Rather, Wagon Wheel is citing to 7 U.S.C. §499e(c)(4), which

provides for an alternate method of preserving PACA trust rights for licensees. Licensees are

entities that hold a valid license issued under PACA. See 7 U.S.C. §499c(a). Essentially,

licensees may preserve their trust benefits by using ordinary and usual billing or invoice

statements to provide notice of the licensee’s intent to preserve the trust, which include certain

PACA trust language. See 7 U.S.C. §499e(c)(4). Here, Wagon Wheel has admitted that it was 4

not a PACA licensee, at the time in question. Therefore, Wagon Wheel’s argument is

inapplicable to the facts of this case. 

IV. Insufficient Information Argument

Because the court has found that Wagon Wheel did not timely serve a Notice of Intent

and failed to preserve their trust benefits, it is unnecessary for the court to address Bank of the

West’s and Kingsburg Group’s objections that Wagon Wheel’s Notice of Intent contained

insufficient information regarding the transactions subject to PACA. 

ORDER

The Court finds that the notice provided and filed by Wagon Wheel was inadequate to

preserve the trust benefits created by PACA and the court determines that Wagon Wheel does not

have a valid PACA claim. 

IT IS SO ORDERED.

Dated: February 9, 2010 /s/ Anthony W. Ishii 

0m8i78 CHIEF UNITED STATES DISTRICT JUDGE

The court notes that under the plain language of 7 U.S.C. §499e(c)(4), it does not appear

4

that a beneficiary that is not also a licensee can rely on invoices to preserve its trust rights. See In

re Enoch Packing Company, Inc. v. Joe Flores, 2007 WL 1589537 (E.D. Cal. June 1, 2007). 

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