*

The Honorable R. Leon Jordan, Senior United States District Judge

for the Eastern District of Tennessee, sitting by designation.

1

RECOMMENDED FOR FULL-TEXT PUBLICATION

Pursuant to Sixth Circuit Rule 206

ELECTRONIC CITATION: 2003 FED App. 0292P (6th Cir.)

File Name: 03a0292p.06

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

_________________

OVERTON DISTRIBUTORS,

INC.,

Plaintiff-Appellee,

v.

HERITAGE BANK,

Defendant-Appellant.

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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 

Before: GILMAN and GIBBONS, Circuit Judges;

JORDAN, Senior District Judge.*

2 Overton Distributors, Inc.

v. Heritage Bank

No. 02-5261

_________________

COUNSEL

ARGUED: Richard L. Colbert, COLBERT & WINSTEAD,

Nashville, Tennessee, for Appellant. Stephen P. McCarron,

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

ON BRIEF: Richard L. Colbert, W. Gregory Miller, J. Frank

Rudy, Jr., COLBERT & WINSTEAD, Nashville, Tennessee,

for Appellant. Stephen P. McCarron, McCARRON &

DIESS, Washington, D.C., for Appellee.

_________________

OPINION

_________________

RONALD LEE GILMAN, Circuit Judge. Overton

Distributors, Inc. supplied produce to Quality Foods of

Tennessee, Inc. between 1993 and 2000. Quality went out of

business in January of 2000, leaving an unpaid debt to

Overton of over $220,000 for produce purchased between

October of 1999 and January of 2000. Overton now seeks to

recover this unpaid debt from Heritage Bank, Quality’s

lender, by invoking the statutory trust provisions of the

Perishable Agricultural Commodities Act (PACA), 7 U.S.C.

§§ 499a-499t, a statute enacted in 1930 to regulate the sale of

perishable agricultural commodities. 

In 1996, Quality entered into an agreement with Heritage

Bank that allowed Quality to obtain advances against the

value of its accounts receivable. Approximately 90% of these

accounts receivable 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 Quality constituted a breach of Overton’s

statutory trust, and that the bank had received the proceeds of
No. 02-5261 Overton Distributors, Inc.

v. Heritage Bank

3

Overton’s produce that were subject to the PACA trust

provisions. 

In ruling on the parties’ cross-motions for summary

judgment, the district court held that Overton had properly

preserved its statutory trust benefits under PACA, leaving the

other issues for resolution at trial. The district court

subsequently ruled for Overton following a two-day bench

trial, concluding that the agreement between Quality and

Heritage constituted a breach of Overton’s statutory trust.

Overton, in the court’s opinion, was thus entitled under

PACA to assert a superior claim to the proceeds from the sale

of its produce that were acquired by Heritage from Quality.

For the reasons set forth below, we REVERSE the judgment

of the district court and REMAND with instructions to

dismiss Overton’s complaint.

I. BACKGROUND

A. Factual background

In late 1993, shortly after Overton began selling produce to

Quality, it sent a letter to Quality providing that the latter

would pay Overton’s invoices within 10 days of a 15-day

accrual cycle. That is, all of the invoices were to be paid

within 25 days of Quality’s receipt of the produce. Charlain

Jarman-Hall, one of the principals of Quality, countersigned

the letter and returned it to Overton in early 1994. For the

next four years, Overton’s invoices to Quality reflected these

payment terms. Then, in 1998, Overton’s invoices to Quality

were unilaterally changed to provide that payment was to be

received within 10 days after the end of each calendar month

in which produce was delivered. Cathy Grossman, Overton’s

director of Business Development, changed the payment

terms because Quality’s payments were typically late and

subject to her boss’s criticism. Overton’s invoices at this time

also contained the following statement:

4 Overton Distributors, Inc.

v. Heritage Bank

No. 02-5261

The perishable agricultural commodities listed on this

invoice are sold subject to the statutory trust authorized

by section 5(c) of the Perishable Agricultural

Commodities Act, 1930 (7 U.S.C. 499e(c)). The seller of

these commodities retains a claim over these

commodities, and any receivables or proceeds from the

sale of these commodities until full payment is received.

Quality consistently paid Overton on an irregular and tardy

basis, often taking between 40 and 60 days to pay an invoice.

Overton regularly called Quality about its slow payments on

the account, but it never required Quality to strictly abide by

any specific terms of payment. Grossman testified that

Overton tolerated Quality’s late payments because Overton

thought that Quality would eventually pay.

Heritage provided banking services to Quality throughout

the latter’s existence. For many of the years in which it

conducted business, Quality had difficulty making its

payments, often writing checks on insufficient funds that

Heritage covered. Quality entered into a financing

arrangement with Heritage in 1996 called the Business

Manager Agreement (BMA). The BMA provided for the sale

of Quality’s accounts receivable to Heritage, with Heritage

advancing Quality payment for those receivables, less a 2.5%

service charge. But the BMA contained numerous provisions

limiting Heritage’s exposure. Quality, for example, remained

liable for all of the advances it received from Heritage should

the proceeds from the accounts receivable not cover the

amount of the funds advanced. Heritage could also reassign

any account receivable to Quality in case of default, it could

debit any of Quality’s accounts without notice to pay any

deficiencies, and it could demand that Quality pay any

shortfall to the bank. Finally, the BMA contained a blanket

security interest on all of Quality’s assets and a representation

that Quality’s receivables were free and clear of all security

interests, liens, and claims of third parties.
No. 02-5261 Overton Distributors, Inc.

v. Heritage Bank

5

In January of 2000, Quality went out of business, leaving

Overton with more than $220,000 in produce delivered to

Quality for which Overton had never been paid. Heritage,

which had acquired the accounts receivable from Quality’s

resale of the produce, became the focus of Overton’s

attention. 

B. Statutory background

One of the purposes of PACA is to protect unpaid sellers of

perishable agricultural commodities. In 1984, Congress

amended PACA to create a statutory trust in their favor.

7 U.S.C. § 499e(c); Endico Potatoes, Inc. v. CIT

Group/Factoring, Inc., 67 F.3d 1063, 1067 (2d Cir. 1995)

(“[D]ue to the need to sell perishable commodities quickly,

sellers of perishable commodities are often placed in the

position of being unsecured creditors of companies whose

creditworthiness the seller is unable to verify.”). The trust

protects the sellers against financing arrangements made by

merchants, dealers, or brokers who encumber or give lenders

a security interest in the commodities or the receivables or

proceeds from the sale of the commodities, thus giving the

claims of these sellers precedence over those of secured

creditors. 

The statute and the federal regulations expressly lay out the

steps that a produce seller must take to come within PACA’s

protection. 7 U.S.C. § 499e(c)(3) and (4); 7 C.F.R.

§§ 46.2(aa) and 46.46(e). Under all circumstances, the seller

must give the buyer written notice of the seller’s intention to

preserve its trust benefits. Congress further amended PACA

in 1995 by allowing sellers to provide this notice on the

invoices given to the buyer. If the seller and the buyer use the

default payment terms provided in the regulations (“within 10

days after the day on which the produce is accepted”), this

notice of intent to preserve benefits is all that is necessary.

On the other hand, if the parties agree to payment terms

greater than 10 days after acceptance, but in no event more

6 Overton Distributors, Inc.

v. Heritage Bank

No. 02-5261

than 30 days after acceptance, this agreement must be in

writing. The seller must also disclose these non-statutory

payment terms “on invoices, accountings, and other

documents 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. § 46.46(e)(2), which provides as

follows: “The maximum time for payment for a shipment to

which a seller, supplier, or agent can agree and still qualify

for coverage under the trust is 30 days after receipt and

acceptance of the commodities . . . .” This limitation exists

because the statute is intended to protect only those produce

sellers making short-term credit arrangements. 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. Procedural background

Because Quality was insolvent, Overton sued Heritage to

recover the amount of its unpaid invoices owed by Quality.

Overton maintained that it had properly preserved its claim to

trust benefits under PACA, that the BMA between Quality

and Heritage constituted a breach of the PACA trust, and that

Overton was therefore entitled to recover from Heritage.

Heritage responded by arguing that Overton had not properly

preserved its trust benefits, and that, even if it had, the BMA

represented a bona fide sale of the accounts receivable to the

bank, not a security interest that would allow Overton to

claim priority over these funds.

The district court, in partially granting Overton’s motion

for summary judgment, found that Overton had properly

preserved its PACA trust benefits. A two-day bench trial

followed to resolve the remaining issues. In an order dated

January 7, 2002, the district court concluded that the BMA

constituted a breach of the trust. The court also held that
No. 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

from Quality plus prejudgment interest. This timely appeal

followed.

II. ANALYSIS

A. Standard of review

Heritage appeals both the district court’s bench-trial

decision and its order granting partial summary judgment to

Overton. “In considering a district court’s decision following

a bench trial, this court reviews findings of fact under the

clearly erroneous standard. Conclusions of law, on the other

hand, are reviewed de novo. We also review de novo the

district court’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 genuine issue of

material fact exists and the moving party is entitled to

judgment as a matter of law. Fed. R. Civ. P. 56(c). In

considering such a motion, the court must construe all

reasonable factual inferences in favor of the nonmoving party.

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.

574, 587 (1986). The central issue is “whether the evidence

presents a sufficient disagreement to require submission to a

jury or whether it is so one-sided that one party must prevail

as a matter of law.” Anderson v. Liberty Lobby, Inc., 477

U.S. 242, 251-52 (1986).

B. The district court erred in concluding that Overton

had preserved its trust benefits pursuant to the

provisions of PACA

In early 1994, Quality confirmed the payment terms of 10

days within a 15-day accrual by countersigning and returning

Overton’s letter that set forth this understanding. Thus, in

8 Overton Distributors, Inc.

v. Heritage Bank

No. 02-5261

compliance with PACA, payment was due within the 30-day

maximum allowed by the regulations. In addition, Overton

included on all of the relevant invoices a statement of its

intention to preserve its PACA trust benefits. Overton failed,

however, to place the payment terms as agreed to in the 1994

written agreement on these invoices. Instead, the payment

terms on all invoices from 1998 forward were “10 days

EOM,” establishing that the payment was due within 10 days

after the end of each calendar month in which produce was

delivered. Because payments for produce delivered on the

first of the month could be made as late as 40 days after the

date of acceptance, the invoices indicated that Overton was

agreeable to a payment schedule outside of PACA’s

protection.

Overton presented two alternate theories to avoid the

consequences of its failure to comply with PACA’s

requirements: (1) the very fact that the parties’ 1994

agreement and the payment terms on the relevant invoices

differ indicates that the agreement was ambiguous and, as a

result, no agreement at all; and (2) the different terms on the

invoices were the result of a clerical error, and that Overton

should be given the benefit of the doubt due to its good faith

effort to substantially comply with PACA.

In order to bring Overton within the statute’s protection, the

district court adopted both of the above theories. It used the

1998-2000 invoices to find ambiguity in the unambiguous

1994 writing expressing the parties’ agreement, and it

examined the record as a whole to give Overton the benefit of

the doubt. But the statutory language is quite clear. Absent

a written agreement altering the payment terms set in 1994,

all of the subsequent invoices from Overton to Quality were

required to disclose the agreed terms of payment. 7 U.S.C.

§ 499e(c)(3); 7 C.F.R. § 46.46(e)(1). 

The parties had clearly agreed in 1994 to terms different

from the standard 10-day payment provision contained in the
No. 02-5261 Overton Distributors, Inc.

v. Heritage Bank

9

PACA regulations. Consequently, PACA and the regulations

mandate that those terms had to be disclosed on the invoices.

Overton cannot have it both ways. It cannot, on the one hand,

list terms on its invoices that are not only different from those

mutually agreed upon, but also permit payment outside of

PACA’s requirements, and then on the other hand argue that

it has substantially complied with PACA. 

There are no Sixth Circuit cases dealing with the

preservation of trust benefits under PACA. The two cases

from other circuits relied on by the district court deal with

oral agreements that extended the payment terms beyond the

standard 10-day statutory provision. Idahoan Fresh v.

Advantage Produce, Inc., 157 F.3d 197 (3d Cir. 1998)

(holding that PACA’s requirement that an agreement to

extend the payment period be in writing relates to the

enforceability of an agreement to extend a payment term, but

does not disqualify an unpaid seller from receiving trust

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

Cir. 1991) (holding that oral agreements between produce

sellers and buyers as to payment terms beyond the standard

10 days after delivery had no effect on the seller’s right to

trust protection under PACA). The statute, however, imposes

strict disclosure obligations relating to written agreements

that extend the payment terms, and there is no dispute about

the contents of the parties’ 1994 agreement. As a result, these

cases provide little guidance for the situation presented here.

The Ninth Circuit 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 before us. In Bowlin, the parties had a

written agreement that extended the payment terms beyond

the standard 10-day statutory provision, but the seller failed

to include these terms on its invoices. Id. at 939. The court

held that the benefits of the trust were lost. Id. at 940. The

Bowlin court also held that the seller’s argument that it had

substantially complied with the statute failed. Id. at 940

10 Overton Distributors, Inc.

v. Heritage Bank

No. 02-5261

(“Unless the terms of the statute are met, [PACA] specifies

that the benefits of the trust are lost.”). We agree with the

Ninth Circuit’s analysis.

Overton argues that the 1998-2000 invoice-payment terms

are an alteration that rendered the earlier agreement

ambiguous or void. As previously indicated, however, we

find no factual or legal support for Overton’s position. Its

alternative contention that the incorrect terms were placed on

the invoices due to a clerical error is also without merit.

Overton’s Director of Business Development testified that the

change extending the payment term was made in 1998

because Quality’s payments were typically late. This was

consistent with Overton’s practice of not requiring Quality to

abide by any specific terms of payment, which often was

received 40 to 60 days after invoice. Overton was of course

free as a business matter to provide lenient payment terms to

Quality, but by doing so it failed to preserve its trust benefits

under PACA. 7 U.S.C. § 499e(c)(3); 7 C.F.R. § 46.46(e)(2).

Even though the payment terms included on the relevant

invoices had the effect of requiring payment within thirty

days on shipments that happened to be made after the tenth

day of the prior month, Congress’s purpose in enacting PACA

was to protect sellers delivering their produce on essentially

cash terms, not to provide protection to sellers who are

willing to extend payment terms beyond the statutory

maximum. See Hiller Cranberry Prods., Inc. v. Koplovsky,

165 F.3d 1, 12 (1st Cir. 1999) (Selya, J. dissenting) (“Those

courts that have addressed claims involving payment terms of

more than thirty days uniformly have held PACA inapplicable

on the ground that the thirty-day maximum period is to be

imposed as written.”). This interpretation has the significant

commercial advantage of putting third parties such as

Heritage on notice as to whether or not the invoice-payment

terms themselves make the produce sale in question subject

to PACA trust protection, without the onerous requirement of

having to ascertain the precise delivery date of each particular
No. 02-5261 Overton Distributors, Inc.

v. Heritage Bank

11

shipment. Furthermore, in the case before us, Overton neither

argued that we should ascertain individual delivery dates nor

made any effort to segregate deliveries made within the first

10 days of each billing cycle from those made thereafter.

Because Overton’s 40-day maximum payment term failed

to preserve its trust benefits under PACA, it is not entitled to

assert priority over Quality’s accounts receivable that arose

from the sale of Overton’s produce. We therefore have no

reason to resolve the issue of whether Quality’s BMA with

Heritage was in fact only a security interest in Quality’s

accounts receivable or whether Heritage was a bona fide

purchaser for value of those accounts. 

III. CONCLUSION

For all of the reasons set forth above, we REVERSE the

judgment of the district court and REMAND with

instructions to dismiss Overton’s complaint.