* The Honorab le R. Leon Jordan, Senior United States Distri ct Judge

for the Eastern Dist

rict of Tennessee, si tting by designation.

1 RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Six

th Circuit Rul e 206

ELECTRO NIC CIT

ATION: 2003 FED App . 0292P (6th C ir.) File Name: 03a02 92p.06



### UNITED STATES COURT OF APPEALS

FOR THE SIXT H CIR CUIT

_________________
O VERTON D ISTRIBUTORS , I NC ., Plaintiff-Appellee,

v.

H ERITAGE B ANK , Defenda nt-Appel

lant. X - - - -
> , - - - - N No. 02-5261

Appeal from the United States District Court for the Middle District of Tennessee at Nashville. No. 00-00284—John T. Nixon, District Judge.

Argued: July 29, 2003 Decided and Filed: August 15, 2003

Befor e: GILMAN

and GI BBONS, Circuit Judg es; JORDAN, Senior District Judge. * 2 Overton Distributors, Inc. v. Heritage Bank No. 02-5261

_________________ COUNSEL

ARGUED: Richard L . Colbert, COLB ERT & WINSTEAD, Nashville , Tennes see, for Appellan t. Stephen P. McCarron, McCARRON & DIESS, Washing to n, D.C., for Appellee. ON BRIE F: Richard L . Colbert, W. Gregory Miller, J. Frank Ru dy, Jr., COLBERT & WI NSTEAD, Nashville, Tennessee, for Appellant. Stephen P

. McCarron, McCARRON & DIESS, Washington, D.C., for Appellee.

_________________ OPINION

_________________ RON ALD LEE GI

LMAN, Circuit Judge. Overton Distributors, Inc. supplied produce to Quality Foods of Tennessee, Inc. between 1993 and 2000. Quality went out of businessin Janu ary of 2 000, leav ing an u npaid debt to Overton o f over $220,000 for produce purchased betwee n October of 1999 and January of 2000. Overton now seeks to
recover this unpaid debt from Heritage Bank, Qua l it y’s len der, by invoking the statutory trust provisions of th e Perishab le Agricultural Commodities Act (PACA), 7 U.S.C. §§ 499a-49 9t, a statu

te enacted in

1930 to regulate the sale of perishable agricultural commodities.

In 19 96, Quali

ty e ntered i nto an ag reemen t with Her

ita g e Bank that allowed Quality to obtain adva nce s against the value of its accounts receivable. Approximat ely 90% of the se accou nts rece ivable arose from the sale or resale of produce covered by PACA. The owners of Quality filed a Chapter 7 bankruptcy

petition in July of

2000. This

caused Overton to
sue Heritage to recover its losses, contending that the bank’s agreement

with Qual ity c onstitute d a breach of Overton’s statutory trust, and that the bank had received the proce eds ofNo. 02-5261 Overton Distributors, Inc. v. Heritage Bank 3

Overton’s p r oduce tha

t were su

bject to the PACA tru st provisions.

I nruling on the parties’ cross-motions for sum mar y judgmen t, the dist r ict cour t held tha t Overton had prop erly preserved its statutory trust benefits under PACA, leavingthe other issues for resolu

tion at tri al. The d

istric t co urt subseque ntly rul e d for Overton following a two-day bench trial , co ncluding that the agreement betwe en Quality and Herit age constituted a breach of Overton’s statutor y tru st. Overton, in the cou

rt’s opini on, was th

us enti tled under PACA to assert a superior

claim to the pro ceeds f

rom the sa

le of its p ro du ce th at we re ac qu ir ed by H er it ag e f ro m Q ua li ty. For the reasons set forth below, we REVERSE the judgment of the district court and REMAND wit h in struction s to dismiss Ove

rton’s c omplaint.

I. BACKGROUND

A. Factua

l background

Inlate 1993, shortly after

Overton began selling produce to Qu al it y, it sent a letter to Quality providi ng that the latter would pay Over

ton’s invoices within 10 day s of a 15-day accrual cy cle. That is, all of the invoices were to be pa i d within 25 days of

Quality’s rec eipt of the produce. Charlain Jarman-H all, one of the principals of Quality , countersigned t he letter and ret urned it to Overton in ea rly 1994. Fo r th e next four ye ars, Overton ’s invoic es to Qua lity reflected these payment terms. Then, in 1 998, Over ton’s invo ices to Qu

ality were unilaterally

changed to providethat payment was to be received within 10 days after

the end of ea

ch cale ndar mont

h inwhichproduce was delivered. Cathy Grossman, Overton’s director of Busi n ess Development, changed the pay ment terms because

Quality ’s pa yments were typically late and subject to her bos s’s criti cism. Ove rton’s invoices at

this time also cont ained the following

statemen t: 4 Overton Distributors, Inc. v. Heritage Bank No. 02-5261

The perishable agricultural commodities listed on this invoice are sold subject to the statutory tr ust authorized by sec ti on 5(c) of the Perishable Agricultural Commodities Act, 1930 (7 U.S.C. 499e(c)). Theseller of thesecommoditie s retains a claim ove r these commoditie s, and any re ceivables or p roc eeds from the sale of these

commoditie s untilfull payment is rec eived. Quality consiste ntly paid Overton on

an irregular and tardy basis, often

taking between 40 and 60 day s to pay an

invoice. Overton regula rly called Q uality about its sl ow pay

ments on the accoun

t, but it never r equired Quality to strictly abide by any spe c ific terms of pay

ment. Grossman testified that Overton to ler ated Quality’s late

payments beca

use Overton th ou gh t t ha t Q ua li ty w ou ld ev en tu al ly p ay.
Herit age provid edbanking services to Quality throughout the latter ’s exi stence. For many of the y ears in w hich it conducted

business, Qu ality

had diff

iculty making i

ts pay ments, often wr

iting ch ecks on in suf

ficient funds that Herit age co vered. Quality e ntered into a financing
arran gemen twith Her

itage i n 1996 ca

lled the B usiness Manager Agreement (BMA). The BMA provided for the s ale of Quality ’s acco

unts rec eivable

to Herit age, wi th Her itage advancing

Quality pay ment for t hose rec eivable s, less a

2.5% service charge. But

the BMA contained numerous provisions limiting Heritage’s exposure. Quality, for example, remained liablefor all

of the ad vances i treceiv ed from H eritag e should the procee ds from the accounts receivable not cover the amount of the funds advan ced. He ritage could also r eassi gn any accoun t receivable to Qu

ality incase of

default , it could d ebit any of Qua

lity’s accounts without notice to p ay an y deficie ncies, and it could demand that Quality pa y any shortfa ll to the bank. Fina lly, the BMA contained a blanket security interest on allof Quality’s assets a nd a representation that Quality ’s rece ivables w e re fre e and cle ar of al l securit y interest s, liens, a

nd claims o f third pa

rties.No. 02-5261 Overton Distributors, Inc. v. Heritage Bank 5

InJanuary

of 2000, Q

uali ty went out of business, leaving Overton with m ore than

$220,000 i

n produc e delive

red to Q uality for wh ich Ov erton had ne ver bee n paid . Heri tage , whichhad acquired the accounts rece ivable fr om Quality’s resale of the produce, b ecamethe focus of Overton’s attention.

B. Statutor

y backgroun d

One of the purposes

of PACA is to

protect unpaid sellers of perisha ble agric ultural c ommodities . In 1 984, Cong ress amended PACA to cr eate a

statutory trust in their favor. 7 U.S.C. § 499 e(c); Endico Po ta toes, I nc. v. CIT Gr oup/Factoring, Inc ., 67 F.3d 1063, 1067 (2d Cir. 1 995 ) (“[D]ue to the nee d t o s el l p er is ha bl e c om mo di ti es qu ic kl y, sellers of perishable commodities are ofte n placed in the position of bei ng u nse cured c reditors of compa

nies whos e cre ditworthi

ness the seller is unable to verify .”). The trus t protec ts t he sellers against financing a rrangements made by mercha nts, dealer s, or

brokers who encumber or give lende rs a security interest in the com

modit ies or t he receivables or proceeds from the sa le of the commodities, thus giving the claims of these sellers precedence over those of secured creditors.

The statute

and the federal

regulations expressly la

y out the steps that a produce seller must take to come within PACA’s protection. 7 U.S.C. § 499 e( c)(3) a nd (4); 7 C. F.R. §§ 46.2(aa) and 46.46(e). Under all circumstances, the se ller must give the buy

er written notice of the seller’s intention to preserve its trust

benefits. Congress further amended PACA in1995 by allowing se llers to provide this no tice on the invoices given to the buyer. If the seller a nd the buy er use the default pay ment term s provide d in

the regulations (“within 10 da ys after the day

on wh ich the pr

oduce is a

ccepte d”), this notice of intent t

o preser ve bene fits is all t

hat i s ne ce ss ar y. Onthe other

hand, i f the par

ties ag ree to pa yme nt terms greater than 10 days af

ter ac ceptance, but in no event more 6 Overton Distributors, Inc. v. Heritage Bank No. 02-5261

than30 days afte

r acceptance, this agre emen t must be in writi ng. The sel ler mus t also disclose these non-statutory payment terms “on invoices, accounting s, an d other document s relating to the transaction.”7 U.S.C. § 499e(c)(3); 7 C.F.R. § 46.46(e)(1). Thirty days is the

maximum allowable payment term under PACA regulation 7 C.F.R. § 46.4 6( e)(2), which provides as follows: “The maximum time for payment for a shipmen

t to whicha seller, supplier, or agent can agr ee and still qualify for coverage under the trust is 30 day s after rec eipt and acceptanceof the commodities .

. . .” This limi tation exist s because the statut e is intend

ed to protect only those produc e sellers making short-term credit arrang ements. H.R. Rep. No. 98-543 at 7 (1983), reprinted in 1984 U.S.C.C.A.N. 405, 410 (“[T ] he committee does not intend the trust to apply to any credit transaction

that extends beyond

a reasonable period.”).

C. Proce dural backgr ound

Becau se Quality

was inso lv ent, Ove

rton sued Heritag e to
recover the amoun

t of its unpa

id invoice s owed by

Quali t y. Overton maintaine d that it ha

d proper ly preserv ed its cla

im to t rust benefits under PACA, that the BMA between Qual it y and Herit age constitute d a brea ch of the PACA trust, and that Overton was therefore entitled to recover f rom Heritage. Herit age responded by

arguing that Overton had not prope rly preserved its trust benefits, an

d that, even if i

t had, the BMA represented

a bona fide sale of the accounts rec eivable to the bank, nota sec urity

interest that would

allow Ove

rton to claim pri ority

over the se funds.

The district c ourt, in pa

rtially granti ng Over ton’s mo t ion for summary

judgmen t, found that Overton

had prop erly preserved its PACA trust benefits. A two-day be nch trial followed to resolve the remai ning iss ues. In an order da ted Jan uary 7, 2002, the district court c oncluded that t he BM A constituted

a breach of the trust. The court also held thatNo. 02-5261 Overton Distributors, Inc. v. Heritage Bank 7

Heritage’s bona-fide-purchaser defense was without merit. It therefore ordered Heritage to pay Overton the full amount due fromQua lity plus prejudgment intere st. This timely appeal followed.

II. ANALY SIS

A. Standard of review

Her itage appeals

both the di strict co

urt’s be nch-tria l decisionand its or

der gr anting p artial su

mmary judgmen t to Overton. “In considering

a district court’s decision

following
a bench trial, this court reviews findings of fact unde r th e clearly erroneous standard. Conclusions of law, onthe other hand, are reviewed de n ovo

. We also review de novo the districtcourt’s grant of summary judgment.” Burzynski v. Cohen , 264 F.3d 611, 616 (6th Cir. 2001) (internal citations omitted). Summary judgment is proper where no ge nui ne issu e of material fact exist s and the m oving pa rty is entitle d to judgment as a matter of law. Fed. R. Civ. P. 56(c). I n consid ering s uch a moti on, the co urt must construe a

ll
reasona ble factua l in f er en ce s i n f

av or of th e n on mo vi ng pa rt y. Matsushita

Elec. In dus. Co. v. Zenith Rad io Corp ., 475 U.S. 574, 587 (1986). The central issue is “whether the evide nce present s a suffic ient disag reemen t to require submission to a jury or whethe

r it is so one-sided

that one p arty

must prev ail
as a matt er of law.” Anderson v. Liberty Lobby, Inc ., 477 U.S. 242, 251-52 (1986).

B. The district court erred in concluding that Overton had preserv ed its tr ust benefit s pursuant t o the provisions of PACA

Inearly 1994, Quality confirmed the payment terms of 10 da ys within a 15-day ac crual by countersigning and returning Overton’ s lett er that se

t forth thi s underst

anding . Thus, in 8 Overton Distributors, Inc. v. Heritage Bank No. 02-5261

compliance with PACA, payment was due within the 30-day maximu m all owed by the re gulations. In addition, Overton in cluded on all of the relev ant invoic es a state ment of its intention to preserve its PACA trust benefits. Overton failed, however, to place the payment terms a s agreed to in the 1994 writtenagreement on these invoices. I nstead, the payme nt t erms on all invoices from 1998 forward were “10 day s EOM,” establishing that

the payment wa s due wi th in 10 da ys after the end of each calenda

r mont h in which produce was delivered. Beca

use pay ments for produce delivered on the first of the month could be made a s late as 40 days a fter the date of acceptance, the invoi ces indicated that Overton was agree able to a payment sche dule outside of PACA’s protection.

Overton presented two alternate theories to a void t he consequences of it s fa ilure to comply with PACA’s require ments: (1) the ve ry fac t that the parties’ 1994 agr e ement

and the payme

nt terms on the relevant invoices di ffer indicates that the agreement was ambig uous and, as a result, no agreement at

all; and (2) the different

terms on the invoices were the result of a clerical er ror, and t hat Overton should be given the benefit of the doubt due to its goo d faith effort to substantially comply with PACA.

Inorder to bring

Overton within the statute’s protection, the district court adopted both of the above theories. I t used the 1998-2000 invoices to find amb iguity in the unambig uous 1994 writing expressing the parties’ agr eement, an d it examined the record as a whole to give Over ton the benefit of the doubt. But the statutory lang uage is quite clear. Absent
a written a greeme nt a ltering the pay ment terms set in 1994, all of the subsequent

invoices from Ove

rton to Qua

lity were required to disclose the agreed terms of p a yme nt. 7 U.S.C. § 499e(c)(3); 7 C.F.R. § 46.46(e)(1).

The parties had clearly

agreed i n 19 94 to terms different fromthe standard 10-day

payment provision

contained in theNo. 02-5261 Overton Distributors, Inc. v. Heritage Bank 9

PACA regula tions. Consequently, PACA and the regulations mandate that those terms had to be disclosed on the invo ices. Overton cannot have it bot h wa ys. It cannot, on the one hand, list terms on its invoices that are not only differe nt from tho se mutu ally ag reed upon, but also permit pay ment outside of PACA’s requirements, and then on the other hand argue that it has substantially complied with PACA.

There are no Sixth

Circuit ca ses dealing with the preser vatio n of tru st benefits under PACA. The two cases fromother circui ts r elied on by th e district court de al with oral agreements that extended thepayment terms beyond the sta ndard 10-day statutory

provision. Idahoan Fresh v

. Advantage Produce, Inc. , 157 F.3d 197 (3 d Cir. 1998) (holding that PACA’s requirement tha t an agree

ment to extendthe payment per iod be in writing relates to the enforc eability

of an ag reemen t to extend a payment

term, but does not disqua

lify an unpaid

seller f rom rec eiving t

rust benefits); Hull Co. v. Hauser’s Foods, Inc. , 924 F.2d 777 (8th Cir

. 1991) (holding that oral agree ments between pro duc e sellers and buy

ers as to pay ment term s be yond the standard 10 days afte

r delivery ha

d no effec t on the se ller’s r ight to trust protection under PACA). The statute, however, imposes strict disclosur

e obliga tions rela ting to wr

itte n agr eements that extendthe pay

ment term s, and the

re is no di spute about the contents of the parties’ 1994 ag reemen t. As a re sult, these
cases provide l ittle guidance for the situation presented here.

The Ninth Ci r cuit case of Bowlin & Son, Inc. v . San Joaquin Food Service, Inc . ( In re San Joaquin Food Service, Inc. ), 958 F. 2d 938 (9th Cir. 1992), presented facts more analogous to those be fore us. InBowlin , the parties had a writtenagr eementthat extended the payment terms be yond the st andard 1 0-day

statutory provision , but the se ller fai l e d to include these terms on

its invoices. Id. at 939. The court held that the benefits of the trust were lost. Id

. at 9 40. The Bowlin court also held that the seller’s argument that it had substantia lly complied

with the st

atu te f ailed. Id. at 940 10 Overton Distributors, Inc. v. Heritage Bank No. 02-5261

(“Unles s the terms of the statute are met, [PACA] specifies that the benefits of the trust are l ost.”). We agree with the Ninth Circ

uit’s ana lys is.

Overton argues that the 1998-2000 invoice- pay ment term s are an alter

ation tha t render ed the ea

rlie r agreement ambiguous or void. A s previou sly indicated, howeve r, we find no factu al or leg al s upport for Overton’s position. Its alternative contentionthat the in correct terms were placed on the invoices due to a clerical error is also witho ut merit. Overton’s Director of B usines s Development testified that the change extending the payme nt term wa s made in 1998 because Quality ’s pay

me n ts were typica

lly late. This was consistent with Overton’s practice of not requirin g Quali ty to abide by a

ny s pecific terms of p ay

ment, whic

h often was receiv ed 40 to 60 days afte r invoice. Overton

was of c ourse free as a business matter to provide le nient pay ment term s to Qu al it y, but by doing so it failed to prese rve its trust benefits under PACA. 7 U.S.C. § 499e(c)(3); 7 C.F.R. § 46.46(e)(2).

Even though the pay

ment terms included on the relevant invoices hadthe eff

ect of r equiring pay ment within

thirty da ys on shipmen

ts that hap

pened to b e made after the tenth day of the prior month, Congress’s purpose in enacting PACA
was to protect sellers

deliver ing thei r produc e on esse

ntially cash terms, not to provide p ro tection to sellers who are willing to ex t end payment ter ms beyond the statutory maximum. See Hiller Cranberry Prods., Inc. v. K oplovsky , 165 F.3d 1, 12 (1st Cir. 1 999) (Sel ya , J. dissentin

g) (“T hose courts that

have addressed claims involving pay ment terms of
more than thirty day

s uniformly ha

ve h eld PACA inapplica

ble
onthe gro

und that th e thirty

-day maximum per

iod is to b e imposed as written.”). This interpretation has the significant
comm ercial advantage of putting third parties such a s Heritage on notice as to whether or not the invoice-pay ment terms themselves make the prod uce sale in question subject to PACA trust protection, without the onerous requirement of having to ascer

tain the precise

deliver y da te of each particularNo. 02-5261 Overton Distributors, Inc. v. Heritage Bank 11

shipment. Furthermore, in the case beforeus, Overton neither argued that we should ascertain individual delivery dates nor made any effort to segrega

te deliveries made within the first 10 days of ea

ch billing cyc le from those made thereafter.

Becau se Overton’s 40-day maximum payment term failed to preserve its trust benefits under PACA, it is not ent itled to assert priority over Quality ’s acco unts rec eivable

that aro se fromthe sale of Overton ’s pr oduce. We therefore have no
reason to r esol ve the iss

ue of whe

ther Qua lity ’s BMA with Herit age was in

fact o nly a secur

ity interest in Quality ’s
accoun ts receiva ble or whether Heritage wa s a bona fide purchaser for value of those acc ounts.

III. CONCL USION

For all of th e reasons set forth above, we REVERSE the judgment of the dis trict cou

rt and REMAND with instructi ons to dismis s Overton ’s compla int.