1998 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

10-6-1998

Idahoan Fresh v. Advantage Prod Inc

Precedential or Non-Precedential:

Docket 98-3169

Follow this and additional works at: http://digitalcommons.law.villanova.edu/thirdcircuit_1998

This decision is brought to you for free and open access by the Opinions of the United States Court of Appeals for the Third Circuit at Villanova

University School of Law Digital Repository. It has been accepted for inclusion in 1998 Decisions by an authorized administrator of Villanova

University School of Law Digital Repository. For more information, please contact Benjamin.Carlson@law.villanova.edu.

Recommended Citation

"Idahoan Fresh v. Advantage Prod Inc" (1998). 1998 Decisions. Paper 239.

http://digitalcommons.law.villanova.edu/thirdcircuit_1998/239
Filed October 6, 1998 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

No. 98-3169 

IDAHOAN FRESH, A Division of Clement Enterprises 

v. 

ADVANTAGE PRODUCE, INC.; 

WILLIAM H. CARSON; 

WILLIAM H. CARSON, III 

C.H. Robinson Company (Intervenor in D.C.), 

 Appellant 

On Appeal from the United States District Court 

for the Western District of Pennsylvania 

(D.C. Civ. No. 97-00237) 

Submitted under Third Circuit LAR 34.1(a) 

October 5, 1998 

BEFORE: GREENBERG and MCKEE, Circuit Judges, 

and LUDWIG, District Judge.* 

(Filed October 6, 1998) 

_________________________________________________________________ 

*Honorable Edmund V. Ludwig, Senior United States District Judge, for 

the Eastern District of Pennsylvania, sitting by designation. 
 Jennifer Sorce 

 Mark A. Amendola 

 Martyn & Associates 

 820 Superior Avenue, N.W. 

 10th Floor 

 Cleveland, OH 44113 

 Attorneys for Appellant 

 Joseph P. McCafferty 

 McCafferty & Williams 

 2000 East 9th Street 

 Suite 700 

 Cleveland, OH 44115 

 Attorneys for Appellees 

OPINION OF THE COURT 

GREENBERG, Circuit Judge. 

I. INTRODUCTION 

C.H. Robinson Company ("CHR") appeals from the district 

court's order of November 7, 1997, denying its motion to 

exclude certain suppliers of perishable agricultural 

commodities ("produce") from the universe of unpaid

suppliers entitled to recover benefits under the statutory 

trust created by the Perishable Agricultural Commodities 

Act, 7 U.S.C. S 499e(c). CHR intervened in this action filed 

by Idahoan Fresh ("Idahoan") against Advantage Produce, 

Inc. ("Advantage") to enforce the trust and challenged 

Idahoan's proposed schedule of qualified claimants under 

the trust. 

The district court had jurisdiction pursuant to 7 U.S.C. 

S 499e(c)(5). We have jurisdiction over the district court's 

interlocutory order denying the exclusion of Idahoan and 

Alsum Produce, Inc. ("Alsum") as qualified beneficiaries 

pursuant to 28 U.S.C. S 1292(b) as the district court 

certified the order of November 7, 1997, for immediate 

 2 
appeal and we granted CHR's Petition for Permission to 

Appeal. 

II. FACTUAL AND PROCEDURAL HISTORY 

A. Statutory and Regulatory Framework of Perishabl e 

Agricultural Commodities Act of 1930 

We begin with a brief overview of the Perishable 

Agricultural Commodities Act ("PACA"). In 1930, Congress 

enacted PACA to promote fair trading practices in the 

produce industry. See 7 U.S.C. S 499a et seq.; Consumers 

Produce Co. v. Volante Wholesale Produce, Inc., 16 F.3d 

1374, 1377 (3d Cir. 1993). In particular, Congress intended 

PACA to protect small farmers and growers who were 

vulnerable to the practices of financially irresponsible 

buyers.1 See Hull Co. v. Hauser's Foods, Inc., 924 F.2d 777, 

780 (8th Cir. 1991). Under PACA, it is unlawful for buyers 

of produce, inter alia, to fail to make prompt payment for a 

shipment of produce. See 7 U.S.C. S 499b(4). A buyer's 

failure to tender prompt payment triggers civil liability and 

the possible revocation of the buyer's PACA license required 

by 7 U.S.C. S 499c. See 7 U.S.C. SS 499e(a), 449h(a). 

Prompt payment is defined by regulations which apply 

unless the parties agree otherwise in writing prior to the 

transaction. See 7 C.F.R. S 46.2(aa). 

In 1984, Congress amended PACA to protect further 

certain unpaid suppliers2 of produce by including a

statutory trust provision which provides an additional 

remedy for sellers against a buyer failing to make prompt 

payment. See P.L. 98-273; H.R. Rep. No. 98-543, at 2 

(1983), reprinted in 1984 U.S.C.C.A.N. 405, 406. Prior to 

this amendment, unpaid produce suppliers were unsecured 

creditors vulnerable to the buyers' practice of granting 

_________________________________________________________________ 

1. The statute and regulations speak in terms of "commission merchant, 

dealer and broker." See 7 U.S.C. S 499a et seq. For ease of reference, we 

refer to these participants as "buyers." 

2. The statute and regulations use the terms "supplier, seller, or agent." 

This opinion refers to the these participants interchangeably as suppliers 

or sellers. 

 3 
other creditors a security interest in their inventory and 

accounts receivable. See Tom Lange Co. v. Lombardo Fruit 

& Produce Co. (In re Lombardo Fruit & Produce Co.), 12 F.3d 

806, 808-09 (8th Cir. 1994) (citing H.R. Rep. No. 98-543, at 

3 (1983), reprinted in 1984 U.S.C.C.A.N. 405, 407). Under 

the 1984 provision, a buyer's produce, products derived 

from that produce, and the proceeds gained therefrom are 

held in a non-segregated, floating trust for the benefit of 

unpaid suppliers who have met the applicable statutory 

requirements. See 7 U.S.C. S 499e(c); 7 C.F.R. S 46.46(b). 

Thus, the provision gives certain unpaid sellers of produce 

an interest in the PACA trust assets superior to that of a 

perfected, secured creditor. See Consumers Produce, 16 

F.3d at 1379. In a 1995 amendment to PACA, which we

discuss below, Congress made procedural changes in the 

trust fund provisions. See P.L. 104-48,S 6, 7 U.S.C. 

S 499e(c)(4). 

To enforce its rights under the statutory trust, a qualified 

beneficiary may file a claim in the district court 

immediately upon the buyer's failure to tender prompt 

payment. See 7 U.S.C. S 499e(c)(5). A qualified unpaid seller 

remains entitled to benefits until paid in full. See 7 C.F.R. 

S 46.46(c)(1). A seller eligible for the statutory trust benefits 

must preserve its rights by satisfying a notice requirement 

by either sending notice to the buyer within 30 days of a 

payment default or, as provided in the 1995 amendment to 

PACA, including a statutory statement referencing the trust 

on its invoices. See 7 U.S.C. S 499e(c)(3), (4); 7 C.F.R. 

S 46.46(c), (f). While a seller may agree in writing to a 

payment period other than that defined in the regulations 

as prompt, an unpaid seller loses its right to participate in 

the trust if it agrees in writing to extend the payment period 

beyond 30 days. See 7 C.F.R. S 46.46(e)(2). The issue 

presented by this appeal is whether a seller also forfeits its 

right to participate in the PACA trust if it fails to reduce to 

writing an agreement to extend the payment term. 

B. Current Dispute 

Over a period of several months, Advantage purchased 

produce from Idahoan, CHR, Alsum, O.P. Murphy & Sons 

("Murphy"), and Powerhouse Produce, L.L.C. 

 4 
("Powerhouse"). The details of these transactions are not in 

dispute.3 

In a series of transactions from August 7, 1996, through 

December 28, 1996, Idahoan sold a total of $116,684.26 

worth of produce on credit to Advantage. See app. 9.4 All of 

Idahoan's invoices to Advantage contain the language 

required under 7 U.S.C. S 499e(c)(4), the 1995 PACA

amendment, to notify the buyer that the seller intends to 

preserve its trust claim against the buyer. Idahoan and 

Advantage did not enter into a written agreement extending 

the payment term which, in this case, in the absence of a 

written agreement altering the term, is ten days. See 7 

C.F.R. S 46.2(aa)(5). However, William Carson, president of 

Advantage, alleges that they had an oral agreement 

extending the payment term to 20 days. Additionally, 28 of 

the 30 outstanding invoices issued by Idahoan to 

Advantage stated "PAYMENT TERMS: Net 20 days." The 

remaining two invoices contain no payment term. 

Alsum sold, on credit, a total of $10,708.00 worth of 

produce to Advantage in two transactions on October 9 and 

24, 1996. Alsum and Advantage did not enter into a written 

agreement extending the payment term. As with Idahoan, 

Carson claims that Alsum and Advantage had an oral 

agreement to extend the term, though in Alsum's case the 

extended term was 15 rather than 20 days. 

Notwithstanding the oral agreement, both of Alsum's

unpaid invoices state "PAYMENT TERMS: NET 10." Both

invoices also contain the statutory language as provided in 

the 1995 PACA amendment notifying Advantage that Alsum 

intended to preserve its PACA trust claim. 

CHR sold $36,004.80 worth of produce to Advantage 

pursuant to their written agreement to extend the payment 

term to 30 days. CHR's invoices for these sales included a 

_________________________________________________________________ 

3. Because there seems to be no dispute that Murphy and Powerhouse 

are qualified PACA trust beneficiaries, we need not be concerned with 

the details of their transactions with Advantage. Our discussion of the 

facts therefore is limited to Advantage's transactions with Alsum, 

Idahoan, and CHR. 

4. Citations to the appendix refer to the tab number because the pages 

of the Appendix are not numbered continuously. 

 5 
payment term of 30 days as well as the statutory language 

required to preserve its interest in the PACA trust. See app. 

5. 

Advantage failed to pay Idahoan, Alsum, and CHR the

amounts due on these outstanding invoices. On February 

10, 1997, Idahoan filed a complaint against Advantage and 

its officers, William Carson and William Carson III, for 

damages and injunctive relief alleging violations of PACA 

based upon Advantage's failure to pay its invoices and 

breach of the statutory trust. The district court issued a 

temporary restraining order on February 11, 1997, 

enjoining the defendants from further dissipating the 

constructive trust imposed by 7 U.S.C. S 499e(c). On 

February 20, 1997, Idahoan and Advantage filed a 

Stipulated Order for Preliminary Injunction which stated a 

procedure for identifying all of Advantage's qualified and 

unpaid PACA trust creditors. 

CHR intervened as a party plaintiff in the action on May 

27, 1997. See app. 5. On June 2, 1997, Idahoan and 

Advantage filed a Joint Status Report and Motion for an 

Order for the Distribution of PACA Trust Proceeds ("Joint 

Motion") identifying the following universe of qualified PACA 

trust creditors: 

 Idahoan $ 116,684.26 

 CHR 36,004.80 

 Murphy 4,300.00 

 Alsum 10,708.00 

 Powerhouse 4,868.00 

 ____________ 

 $ 172,565.06 

App. 6. 

Although CHR was a party to the action at the time 

Advantage and Idahoan filed the Joint Motion, they did not 

consult CHR or invite CHR to join in the Joint Motion. On 

June 5, 1997, CHR filed an objection to the Joint Motion 

and served discovery requests upon Advantage seeking 

documents which established the alleged qualified status of 

the creditors set forth in the Joint Motion. See app. 7. CHR 

then filed a Motion to Exclude Alsum and Idahoan from the 

universe of qualified PACA trust creditors on the grounds 

 6 
that they failed to comply with the statute and regulations. 

In particular, CHR argued that Idahoan and Alsum orally 

agreed to extend the payment term beyond the ten-day 

period established in the regulations, and they were, 

therefore, not qualified PACA trust creditors because the 

agreements were not reduced to writing prior to the

transaction. See app. 9. 

At the time of briefing on this appeal, the total amount of 

available PACA trust funds was approximately $45,000.00. 

See Br. for Appellant at 5. If Idahoan and Alsum are 

excluded from the universe of qualified trust beneficiaries, 

the total qualified and unpaid trust claims would be 

$45,172.80. Thus, their exclusion would result in payment 

virtually in full, rather than a small pro-rata portion, to the 

qualified PACA trust creditors, CHR, Powerhouse, and 

Murphy. 

On November 7, 1997, the district court issued an order 

denying CHR's Motion to Exclude Idahoan and Alsum citing 

"the reasons stated of record at the argument of the 

motion." App. 12. Following argument on CHR's motion to 

exclude, the district court stated that an oral agreement to 

extend a payment term is totally ineffective and, provided 

that the supplier complies with the notice provisions of the 

statute, it is a qualified PACA trust beneficiary. See Br. for 

Appellee, Attach. at 11-12.5 Thereafter, CHR filed a motion 

for reconsideration or, in the alternative, certification 

pursuant to 28 U.S.C. S 1292(b). On December 1, 1997, the 

district court certified the November 7, 1997 order, for 

immediate appeal, the controlling question of law being 

whether Idahoan and Alsum "perfected their trust claims 

under PACA." On February 19, 1998, we granted CHR's

Petition for Permission to Appeal. See app. 1, 14. 

III. DISCUSSION 

CHR contends that the district court erred in finding that 

Idahoan and Alsum were qualified to receive statutory 

benefits under PACA. According to CHR, the plain 

_________________________________________________________________ 

5. A partial transcript of the argument is included as an Attachment to 

the Brief for the Appellee, Idahoan. 

 7 
language, legislative history, and purposes of the statute 

and regulations lead to the conclusion that a seller forfeits 

its right to PACA trust benefits if it orally agrees to extend 

the payment term beyond that established in the 

regulations as prompt, in this case, ten days. 

There is no dispute that Idahoan and Alsum did not 

reduce to writing their agreements to extend the payment 

period in their transactions with Advantage. There is also 

no dispute that Idahoan's and Alsum's invoices properly 

notified Advantage of their intent to preserve their right to 

statutory benefits under 7 U.S.C. S 499e(c)(4). Thus, as we 

have indicated, this appeal raises the following issue 

regarding the proper interpretation of PACA: whether an 

agreement to extend the payment term beyond the time 

defined by the regulations as prompt must be in writing in 

order for the seller to qualify for the benefits of the PACA 

trust. Because this appeal concerns solely the legal issue of 

the proper interpretation of statutes and regulations, we 

exercise de novo review over the district court's order. See 

Shell Oil Co. v. Babbit, 125 F.3d 172, 175 (3d Cir. 1997). 

We initially point out that certain general precepts guide 

us on this appeal. The role of the courts in interpreting a 

statute is to give effect to Congress's intent. See Negonsott 

v. Samuels, 507 U.S. 99, 104, 113 S.Ct. 1119, 1122-23 

(1993). Because it is presumed that Congress expresses its 

intent through the ordinary meaning of its language, every 

exercise of statutory interpretation begins with plain 

language of the statute itself. See Santa Fe Med. Servs., Inc. 

v. Segal (In re Segal), 57 F.3d 342, 345 (3d Cir. 1995) 

(citing Mansell v. Mansell, 490 U.S. 581, 588, 109 S.Ct. 

2023, 2028 (1989)); United States v. Pelullo, 14 F.3d 881, 

903 (3d Cir. 1994). Where the statutory language is plain 

and unambiguous, further inquiry is not required, except in 

the extraordinary case where a literal reading of the 

language produces an absurd result. See In re Segal, 57 

F.3d at 346. Moreover, a court may depart from the plain 

language of a statute only by an extraordinary showing of 

a contrary congressional intent in the legislative history. 

See Garcia v. United States, 469 U.S. 70, 75, 105 S.Ct. 479, 

482 (1984). 

 8 
In interpreting a statute, courts should endeavor to give 

meaning to every word which Congress used and therefore 

should avoid an interpretation which renders an element of 

the language superfluous. See United States v. State of 

Alaska, ___ U.S. ___, 117 S.Ct. 1888, 1918 (1997); United 

Food & Commercial Workers Union Local 751 v. Brown 

Group, Inc., 517 U.S. 544, 550, 116 S.Ct. 1529, 1533 

(1996) (reading which gives effect to all of a statute's 

provisions prevails over one which disregards a provision as 

legislative oversight); First Bank Nat'l Ass'n v. FDIC, 79 F.3d 

362, 367 (3d Cir. 1996); Insurance Co. of N. Am. v. Cohn (In 

re Cohn), 54 F.3d 1108, 1115 (3d Cir. 1995). This basic 

tenet of statutory construction applies equally to the 

interpretation of regulations. See Silverman v. Eastich 

Multiple Investor Fund, LP, 51 F.3d 28, 31 (3d Cir. 1995) 

(dealing with canon that court should construe statutory 

language so that all provisions are given effect); LaVallee 

Northside Civic Ass'n v. Virgin Islands Coastal Zone 

Management Comm'n, 866 F.2d 616, 623 (3d Cir. 1989)

(regulation which conflicts with statute under which it was 

promulgated is ineffective, but court should endeavor to 

reconcile the two). Thus, the preferred construction of a 

statute and its regulations is the one that gives meaning to 

all provisions. See United States v. Higgins, 128 F.3d 138, 

142 (3d Cir. 1997). 

In addition to following these general canons of statutory 

construction, we are mindful that PACA, which was enacted 

to protect unpaid suppliers of produce and alleviate the 

burden of nonpayment on commerce, see 7 U.S.C. 

S 499e(c)(1); H.R. Rep. No. 98-543, at 3-4 (1983), reprinted 

in 1984 U.S.C.C.A.N. at 407, is remedial legislation which 

a court should construe broadly to effectuate its purpose. 

See Tcherepnin v. Knight, 389 U.S. 332, 336, 88 S.Ct. 548, 

553 (1967); RNS Servs., Inc. v. Secretary of Labor, Mine 

Safety & Health Admin., 115 F.3d 182, 186-87 (3d Cir. 

1997); see also Hull, 924 F.2d at 782; Exportal LTDA. v. 

United States, 902 F.2d 45, 46 (D.C. Cir. 1990); Harry Klein 

Produce Corp. v. United States Dep't of Agric., 831 F.2d 403, 

405 (2d Cir. 1987). 

With these principles in mind, we begin our analysis with 

the statutory and regulatory language. The statute and 

 9 
regulations refer, in numerous instances, to the 

requirement that an agreement to extend the prompt 

payment period be in writing. This appeal requires us to 

determine whether that requirement relates only to the 

enforceability of such an agreement or is a precondition to 

a seller's qualification for trust benefits. We turn first to the 

section of the statutory trust provision which refers to the 

writing requirement. 

The statutory trust provision provides that the produce, 

products derived from that produce, and any proceeds 

gained therefrom are held in trust by the buyer for the 

benefit of unpaid sellers until such sellers are paid in full. 

See 7 U.S.C. S 499e(c)(2). Two subsections condition this 

provision by requiring an unpaid seller to preserve its rights 

to the trust benefits by notifying the buyer of its intent to 

do so, 7 U.S.C. S 499e(c)(3), which we discussfirst, and 7 

U.S.C. S 499(c)(4), which we discuss below. In the context of 

establishing this notice requirement, the statute refers to 

the mandate that an agreement must be in writing. In 

particular, the statute provides that 

 (3) The unpaid supplier . . . 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 

 [buyer] within thirty calendar days (i) after the 

 expiration of the time prescribed by which payment 

 must be made, as set forth in regulations issued by the 

 Secretary; [or] (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 . . . . 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. S 499e(c)(3).6 

_________________________________________________________________ 

6. Section 499e(c)(3) also provides that proper notice may be given within 

30 days after the seller receives notice that the payment instrument 

presented by the buyer had been dishonored. See 7 U.S.C. S 499e(c)(3). 

The facts of the transactions in this case do not implicate this portion 

of 

the statute. 

 10 
According to CHR, the plain language of section 

499e(c)(3), in particular Congress's use of the term"shall," 

unambiguously requires that an agreement to extend the 

payment term be in writing in order for the seller to 

preserve its PACA trust benefits. This reading overstates 

what the subsection requires. The statute provides that an 

unpaid seller "shall lose the benefits of such trust unless 

such person has given written notice of intent to preserve the 

benefits of such trust." 7 U.S.C. S 499e(c)(3) (emphasis 

added). The remainder of that sentence establishes the time 

period in which such notice must be given. In the context 

of defining timely notification, the statute then provides 

that agreements to extend payment terms must be in 

writing and that parties shall maintain a copy of such an 

agreement and disclose the terms of the agreement on 

invoices and other documents relating to the transaction. 

See 7 U.S.C. S 499e(c)(3); see also 7 C.F.R. S 46.2(aa)(11). 

Thus, Congress, using the verb "shall," unambiguously 

intended that a seller timely notify the buyer of its intent to 

preserve its rights to PACA trust benefits. The plain and 

unambiguous language of the section does not provide, 

however, that a written agreement is a precondition of 

being entitled to the statutory trust benefits. Rather, the 

requirement is relevant to assessing when prompt payment 

is due and therefore when notice is timely. 

The plain language of the regulations supports this

reading of the statute. The regulations first mention the 

writing requirement in the context of defining prompt 

payment. As noted above, the regulations establish times 

for prompt payment for various scenarios. See 7 C.F.R. 

S 46.2(aa)(1) - (10); 7 U.S.C. S 499e(c)(3). In this case, the 

regulations provide that, unless agreed otherwise in writing, 

prompt payment is defined as payment within ten days of 

the buyer's acceptance of the produce. See 7 C.F.R.

S 46.2(aa)(5). The regulations also provide that 

 [p]arties who elect to use different times of payment 

 than those set forth [herein] must reduce their 

 agreement to writing before entering into the 

 transaction and maintain a copy of the agreement for 

 their records. If they have so agreed, then payment 

 within the agreed upon time shall constitute `full 

 11 
 payment promptly': Provided, That the party claiming 

 the existence of such an agreement for time of payment 

 shall have the burden of proving it. 

7 C.F.R. S 46.2(aa)(11). This section unambiguously

requires that an agreement to extend a payment term must 

be in writing prior to the transaction. 

The regulations concerning the statutory trust also refer 

to the writing requirement. In particular, the regulation 

provides that 

 [w]hen a seller, supplier or agent who has met the 

 eligibility requirements of paragraphs (e)(1) and (e)(2) of 

 this section, transfers ownership, possession, or 

 control of goods to a commission merchant, dealer, or 

 broker, it automatically becomes eligible to participate 

 in the trust. Participants who preserve their rights to 

 benefits in accordance with paragraph (f) of this section 

 remain beneficiaries until they are paid in full. 

7 C.F.R. S 46.46(c)(1). Subsection (f) requires that the seller 

properly notify the buyer of its intent to preserve its PACA 

trust benefits. See 7 C.F.R. S 46.46(f).7 The "eligibility" 

requirements of paragraphs (e)(1) and (e)(2) provide the 

following: 

 (e) Prompt payment and eligibility for trust benefits. 

 (1) The times for prompt accounting and prompt 

 payment are set out in S 46.2(z) and (aa). Parties who 

 elect to use different times for payment must reduce 

 their agreement to writing before entering into the 

 transaction and maintain a copy of their agreement for 

 their records, and the times of payment must be 

_________________________________________________________________ 

7. This regulation refers to the writing requirement in the same context, 

and virtually to the same extent, as 7 U.S.C. S 499e(c)(3). In particular, 

the regulation provides that a seller's notice of an intent to preserve 

the 

right to PACA trust benefits is timely if given 30 days "[a]fter 

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, but 

not longer than [30 days]." 7 C.F.R. S 46.46(f)(2)(ii). We therefore 

conclude that this section's reference to the writing requirement has the 

same effect as that of 7 U.S.C. S 499e(c)(3) discussed above. 

 12 
 disclosed on invoices, accountings, and other 

 documents relating to the transaction. 

 (2) 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 as defined 

 in S 46.2(dd) and paragraph (a)(1) of this section. 

7 C.F.R. S 46.46(e). As in the statute, section (e)(1) of this 

regulation discusses the writing requirement in the context 

of defining prompt payment for a given transaction. Section 

(e)(2) explicitly provides that a seller is disqualified from 

receiving trust benefits if it agrees to extend the payment 

term longer than 30 days from the buyer's acceptance of 

the produce. The existence of such an explicit 

disqualification supports our view that the writing

requirement is not a prerequisite to eligibility to participate 

in the PACA trust. 

Under CHR's view, these regulations establish eligibility 

requirements separate from the notice requirement to 

preserve eligibility. CHR argues that the eligibility 

requirements for sellers who agree to payment terms

beyond ten days are that such an agreement be reduced to 

writing, those terms be included on all invoices regarding 

the transaction, and that eligibility is lost if the parties 

agree to a payment term over 30 days. CHR asserts that 

these prerequisites do not apply where there is not an 

agreement to extend a payment term. The plain language 

does not support this interpretation. 

The plain language of the statute and regulations 

requires that an agreement establishing a "prompt 

payment" period other than that established in the 

regulations must be in writing. The plain language also 

provides that an unpaid seller loses its right to PACA trust 

benefits if (1) it does not timely notify the buyer of its intent 

to preserve that right or (2) it agrees to a payment period 

beyond 30 days. Because we liberally interpret PACA to 

further its remedial purposes of reducing the burden on 

commerce and protecting unpaid sellers, we find that the 

writing requirement relates to the enforceability of an 

agreement to extend a payment term, but does not 

disqualify an unpaid seller from receiving trust benefits. 

 13 
Idahoan and Alsum satisfied the notice requirement by 

including the requisite language on the face of their 

invoices to Advantage, see 7 U.S.C. S 499e(c)(4), and neither 

party agreed to a payment period over 30 days.8 Their 

failure to reduce their oral agreements with respect to the 

payment term to writing does not disqualify them, and they 

therefore are entitled to share in a pro-rata distribution of 

the statutory trust res until they receive payment in full. 

In so holding, we join the United States Court of Appeals 

for the Eighth Circuit, the only other court of appeals of 

which we are aware which has addressed the precise issue 

presented by this appeal, in concluding that a supplier's 

failure to reduce to writing an agreement to extend the 

payment term does not disqualify that supplier as a PACA 

trust beneficiary. See Hull, 924 F.2d 777. In Hull, two 

unpaid wholesale distributors of produce, Hull & J.J. 

Distributing, instituted suit against a defunct retail grocery 

store, Hauser's, to enforce their PACA trust rights. See id. 

at 778. Some of the retail store's assets were seized by one 

of the store's secured creditors, Gateway, who held

perfected security interests in all of the store's assets and 

inventory. See id. at 778. 

It was undisputed that Hull and J.J. Distributing 

supplied Hauser's with produce over several years and that 

during that time the two suppliers orally agreed to a 

payment period of 45 days and 30 days after delivery, 

respectively. See id. Hull's invoices to Hauser indicated this 

as the payment period, while J.J. Distributing's invoices did 

not indicate any payment term. See id. 

The district court held that Hull and J.J. Distributing 

were entitled to trust benefits for their unpaid invoices 

notwithstanding the fact that they had not reduced their 

payment term extensions to writing. See id. at 779. Finding 

that the two suppliers had given Hauser's sufficient 

notification of their intent to preserve their PACA trust 

rights, the district court held that while the plain language 

of the statute makes oral agreements extending the 

_________________________________________________________________ 

8. We are not reaching the issue of what would happen if the oral 

extension provided for a payment period in excess of 30 days because 

that situation is not before us in this case. See 7 C.F.R. S 46.46(e)(2). 

 14 
payment term unenforceable, it only disqualifies a supplier 

from trust benefits where the supplier enters into a written 

agreement to extend the payment term beyond 30 days. See 

id. 

The court of appeals affirmed the district court,finding 

that "oral agreements have no effect on produce sellers' 

trust protection." Id. at 781. According to the court, a buyer 

who orally agrees to an extension of the payment term 

beyond ten days makes an arrangement to violate PACA's 

prompt payment provision. See id. at 782. The court found 

that 

 it would be incongruous to disregard oral agreements 

 for purposes of enforcing PACA but recognize them for 

 the purpose of voiding the sellers' protection under the 

 trust. Thus, notwithstanding the oral agreements, both 

 sellers retained the right to demand payment within 

 ten days and seek trust protection under PACA. 

Id. at 782.9 In concluding its discussion of this issue, the 

(Text continued on page 17) 

_________________________________________________________________ 

9. We note that the Court of Appeals for the Eighth Circuit has suggested 

a conflicting result in two subsequent decisions. See Tom Lange Co. v. 

Lombardo Fruit & Produce Co. (In re Lombardo Fruit & Produce Co.), 12 

F.3d 806, 809 (8th Cir. 1993) (hereinafter In re Lombardo II); Goldman 

Fruit & Produce Co. v. Lombardo Fruit & Produce Co. (In re Lombardo 

Fruit & Produce Co.), 12 F.3d 110 (8th Cir. 1993) (hereinafter In re 

Lombardo I). These two cases concern disputes between two different 

produce suppliers and a single buyer. In both instances, the court held 

that the unpaid seller was not entitled to PACA trust benefits. See 12 

F.3d at 809; 12 F.3d at 113. 

In In re Lombardo I, although letters and the invoices indicated an 

extended payment period, there was no written agreement which 

complied with all respects of PACA and its regulations. See 12 F.3d at 

113. There was also evidence of an oral agreement to extend the 

payment term. In the absence of a valid written agreement under PACA 

to extend the payment term, the court first stated that it could not 

measure the timeliness of notice based upon the extended payment 

term. See id. Then the court rejected the supplier's argument that its 

notice to the buyer was within 30 days of the expiration of the payment 

period established in the regulations. The court held that 

 [t]he evidence in the record clearly demonstrates that the parties 

 had an agreement to extend the payment terms beyond the ten days 
 15 
 in the regulations. Though this agreement is insufficient to 

preserve 

 Goldman's trust protection, it is a valid contract between the 

 parties. A predicate to the trust protection is the requirement 

that 

 payment is delinquent; having agreed to extend the payment period 

 beyond ten days, it would be incongruous to permit Goldman to now 

 claim that no agreement existed and that payment was therefore 

 due within ten days. 

Id. at 113 (citation omitted). 

In making this statement, the In re Lombardo I court cited the opinion 

in Bowlin & Son, Inc. v. San Joaquin Food Serv., Inc. (In re San Joaquin 

Food Serv., Inc.), 958 F.2d 938, 941 n.2 (9th Cir. 1992). Our reading of 

In re San Joaquin suggests that the In re Lombardo I court may have 

cited it for a proposition In re San Joaquin did not state. Furthermore, 

In re Lombardo I did not question Hull. In the circumstances, to the 

extent, if any, that the language in In re Lombardo I conflicts with Hull, 

we find it unpersuasive. 

In In re Lombardo II, the supplier and the buyer entered into a written 

agreement prior to the transaction to extend the payment term to 30 

days. See 12 F.3d at 809. This agreement complied with PACA and its 

regulations in all respects. See id. Thereafter, the parties modified the 

agreement in writing in such a manner that no longer complied with 

PACA. See id. Although the court does not explain this subsequent 

written agreement or explicitly state in what manner it no longer 

complied with PACA, the opinion suggests that the agreement extended 

the payment term beyond 30 days, for which PACA explicitly disqualifies 

a seller as a trust beneficiary. The court found that, at that time, "an 

agreement complying with PACA no longer existed. There being no 

written agreement complying with PACA, Lange is prohibited from 

claiming PACA's trust protection." Id. at 807 (footnote omitted). The 

court 

further stated that 

 PACA imposes a trust upon the funds held by delinquent 

 purchasers if a written agreement required payment within thirty 

 days of delivery. Thus, at the time trust protection is claimed, 

there 

 must exist a valid written agreement complying with PACA's terms. 

Id. at 809-10. 

This language could be read to imply that without a written agreement 

to extend the payment term, the seller is not entitled to trust benefits. 

Although we believe that such a result would be incorrect in light of the 

explicit holding to the contrary in Hull, we note the potential conflict 

as 
 16 
court also noted that a liberal construction of the statute is 

appropriate because it is remedial legislation. See id. at 782.10 

CHR argues that Hull is not applicable to this case

because it was decided prior to Congress's 1995 

amendment to the PACA statutory trust which, it argues, 

changed the statutory landscape. In 1995, Congress added 

section 499e(c)(4) which provides, as an alternative to the 

post-delinquency methods outlined in subsection 3, an 

invoicing method of notifying the buyer of a seller's intent 

to preserve its right to trust benefits. See 7 U.S.C. 

S 499e(c)(4). According to CHR, because there was no 

invoice-notification method under PACA at the time the 

court decided Hull, the payment terms were crucial to 

determining the timeliness of the notice. CHR asserts that 

the rationale of Hull is inapplicable to this case where the 

timeliness of the notice is irrelevant because the sellers 

complied with the invoice-notification provision. In essence, 

CHR asserts that our interpretation renders the writing 

requirement meaningless in cases such as this where the 

supplier invokes invoice notification. 

The purpose of the 1995 amendment was to remove the

expense to the United States Department of Agriculture in 

administering the trust provisions. See H.R. Rep. No. 104- 

207, at 9 (1995), reprinted in 1995 U.S.C.C.A.N. 453, 456. 

Under the 1995 amendment, a seller may satisfy the notice 

requirement by including on its regular invoicing 

documents a statutory statement indicating the intent to 

preserve its trust rights. See id. An invoice which serves as 

notice to preserve a seller's trust rights also must include 

"[t]he terms of the payment if they differ from prompt 

_________________________________________________________________ 

we are unsure of the court's intentions. Of course, the court may have 

meant nothing more than that the trust protection was lost because the 

payment period was extended in writing beyond 30 days contrary to 7 

C.F.R. S 46.46(e)(2). If so, In re Lombardo II is not inconsistent with 

Hull 

which involved an oral extension by one seller to 45 days. 

10. We recognize that one of the suppliers in Hull agreed to a payment 

period of 45 days. As we have indicated, we are not reaching the issue 

of what would happen if the oral extension provided for a period in 

excess of 30 days. See n.8, supra. The Hull court did not distinguish 

between a 30-day and 45-day period. 

 17 
payment set out in section 46.2(z) and (aa) of this part, and 

the parties have expressly agreed to such terms in writing 

before the affected transactions occur." 7 C.F.R. 

S 46.46(f)(3)(ii). The writing requirement therefore is not 

rendered superfluous under our interpretation of the 

statute where the seller invokes the invoice-notification 

provision. Rather, a written agreement to extend the 

payment period gives rise to the obligation to include the 

payment term on the invoice which serves as notice of the 

seller's intent to preserve it PACA rights. 

District courts in other circuits have followed, either 

implicitly or explicitly, the Court of Appeals for the Eighth 

Circuit's approach in Hull. See A & J Produce Corp. v. CIT 

Group/Factoring, Inc., 829 F. Supp. 651, 655 (S.D.N.Y. 

1993) (holding that only a written agreement to extend a 

payment term beyond 30 days forfeits the seller's rights, so 

that in the absence of a written agreement otherwise, a 

seller is entitled to enforce its right to full payment against 

the buyer within ten days of delivery of the produce); 

Continental Fruit Co. v. Thomas J. Gatziolis & Co., 774 F. 

Supp. 449, 452 (N.D. Ill. 1991) (holding that evidence of a 

course of dealing between the parties accepting payment 

beyond 30 days does not forfeit an unpaid seller's right to 

statutory benefits); C.H. Robinson Co. v. B.H. Produce Co., 

723 F. Supp. 785, 797 (N.D. Ga. 1989), aff'd sub nom., 

C.H. Robinson Co. v. Trust Co. Bank, N.A., 952 F.2d 1311 

(11th Cir. 1992) (discussing the lack of a written agreement 

to extend the payment period only in reference to the 

timeliness of the notice). In each of these cases, there was 

no evidence of a prior written agreement to extend the 

payment term, yet the courts held that the unpaid sellers 

were entitled to PACA trust benefits if they notified the 

buyers within 40 days after the delivery of the produce, 

which is 30 days after the expiration of the ten-day prompt 

payment period established by the regulations. 

In addition, at least one court has described the PACA 

writing requirement for agreements to extend payment 

terms as being in the nature of a statute of frauds. See 

Debruyn Produce Co. v. Richmond Produce Co. (In re 

Richmond Produce Co.), 112 B.R. 364, 374 (Bankr. N.D. 

Cal. 1990). In In re Richmond, the court was faced with the 

 18 
issue of whether certain notices were timely to preserve the 

sellers' rights to statutory trust benefits. Finding that 

certain letters satisfied the writing requirement and 

therefore validly extended the payment term, the court 

found that the notices sent were timely because they were 

sent within 30 days of the expiration of the extended 

payment period. In so holding, the court commented that 

 the purpose of the writing requirement is to preclude 

 uncertainties as to the applicable payment terms and 

 the resulting deadline for filing a PACA notice. Thus, 

 the provision at issue is in the nature of a statute of 

 frauds and serves the same purpose. This conclusion is 

 supported by the statutory requirement that both 

 parties maintain a copy of the agreement in their 

 records and that the terms of the payment be disclosed 

 on `invoices. . . .' 

Id. at 374 (citation omitted). Thus, the court viewed the 

writing requirement as relevant to assessing when prompt 

payment is due and not as a precondition to preserving 

statutory trust benefits. 

CHR urges this court to join those courts which have 

required strict compliance with the preconditions of the 

statutory trust.11 See, e.g., Bowlin & Son, Inc. v. San 

_________________________________________________________________ 

11. Most of the case law considering whether strict or substantial 

compliance is necessary addresses the notice requirement. There is 

authority in support of both positions. Compare Anic, Inc. v. Chipwich, 

Inc. (In re Chipwich, Inc.), 165 B.R. 135, 136 (Bankr. S.D.N.Y. 1994) 

(requirements of notice to preserve trust must be complied with strictly 

such that wrong name on notice renders it ineffective); Blair Merriam 

Fresh Fruit & Produce Co. v. Clark (In re D.K.M.B., Inc.), 95 B.R. 774, 

779 

(Bankr. D. Colo. 1989) (requiring strict compliance with content of 

notice); In re Marvin Properties, Inc., 854 F.2d 1183, 1186 (9th Cir. 

1988) 

(requiring notice to be given by seller itself andfinding that the buyer's 

actual knowledge of the seller's intent was insufficient to preserve its 

statutory PACA trust benefits) with In re Richmond Produce Co., 112 B.R. 

364 (Bankr. N.D. Cal. 1990) (holding that substantial compliance with 

notice requirement is sufficient to preserve right to trust benefits such 

that early notification or notice lacking certain information is 

effective); 

Dubin v. Carlton Fruit Co. (In re Carlton Fruit Co.), 84 B.R. 810 (Bankr. 

M.D. Fla. 1988) (requiring substantial compliance with requirements for 

 19 
Joaquin Food Serv., Inc. (In re San Joaquin Food Serv., Inc.), 

958 F.2d 938, 940 (9th Cir. 1992) (requiring strict

compliance with the clear mandate of Congress to include 

the payment term on an invoice); In re John DeFrancesco & 

Sons, Inc., 114 B.R. 335, 336 (Bankr. D. Mass. 1990) 

(requiring strict compliance with the preconditions of 

participation in trust benefits). But, this case presents the 

issue of whether the writing requirement is a precondition 

to qualification as a PACA trust beneficiary. Only if we 

answered that question positively would we be required to 

reach the issue of whether strict or substantial compliance 

with that requirement was necessary to preserve properly 

an unpaid seller's right to receive benefits. Having found 

that it is not and is rather only relevant to determining 

what constitutes prompt payment in a given transaction, 

we need not decide today whether strict compliance with 

the requirements of PACA trust eligibility is required. 

Nonetheless, we recognize that these cases support the 

interpretation urged by CHR. Although the Court of Appeals 

for the Ninth Circuit has not addressed explicitly the 

precise issue presented by this appeal, its ruling on a 

similar issue suggests a conclusion other than the one we 

reach today. In In re San Joaquin the court held that a 

produce supplier was not entitled to PACA trust benefits 

where the invoices it issued to the buyer did not contain 

the payment term agreed upon by the two parties in writing 

prior to the transaction. See 958 F.2d 938. 

In In re San Joaquin, there was no dispute that the

supplier gave the buyer timely notice of its intent to 

preserve its interest in the trust or that the agreement to 

extend the payment term was in writing. See id. at 939-40. 

Thus, the sole issue presented was whether the supplier's 

failure to include the payment term on the invoice forfeited 

_________________________________________________________________ 

notice such that failure to include date of transaction, contract terms 

and amount due did not render notice ineffective to preserve benefits of 

the statutory trust); In re W.L. Bradley Co., 75 B.R. 505, 511 (Bankr. 

E.D. Pa. 1987) (holding that premature filing of notice under section 

499e(c)(3) was effective). Because there is no dispute that Alsum and 

Idahoan complied with the invoice-notice provision, we need not address 

this issue today. 

 20 
its rights to the PACA trust. As discussed above, 7 U.S.C. 

S 499e(c)(3) requires that "[w]hen the parties expressly agree 

to a payment time period different from that established by 

the Secretary, a copy of any such agreement shall befiled 

in the record of each party to the transaction and the terms 

of payment shall be disclosed on invoices, accountings, and 

other documents relating to the transaction." (emphasis 

added). The In re San Joaquin court found that the 

provision relating to the disclosure of the payment terms on 

invoices was a requirement to preserve a supplier's trust 

rights. See id. at 940. The court found that because this 

was a clear mandate of Congress as expressed in 

unambiguous statutory terms, sellers must comply strictly 

with it to receive trust benefits. See id. 

It is possible that the Court of Appeals for the Ninth 

Circuit also would hold that the requirement of a written 

agreement to extend the payment term beyond the period 

prescribed in the regulations is a prerequisite to preserving 

a supplier's rights to PACA trust benefits. After all, that 

requirement is in the same clause in 7 U.S.C. S 499e(c)(3) 

as the requirement that extended payment terms be 

indicated on invoices. 

In re John DeFrancesco & Sons, Inc., 114 B.R. 335, also 

is inconsistent with the interpretation of PACA that we have 

adopted. The court held that 

 in order to preserve its PACA trust benefits under the 

 statute, [the seller] must prove that it strictly complied 

 with all the necessary statutory requirements. By not 

 offering evidence of an agreement in writing before the 

 transaction was entered into, [the seller] fails to meet 

 its burden of proof that it strictly complied with the 

 statute. 

114 B.R. at 338 (citing In re Lombardo, 106 B.R. 593 

(Bankr. E.D. Mo. 1989)). Thus, the court implicitly held 

that the writing requirement is a precondition to eligibility 

as a trust beneficiary with which sellers must comply 

strictly. 

As discussed above, under our reading of the statute and 

the regulations, the plain language does not support the 

result reached by these cases. Guided as we must by the 

 21 
plain language, we therefore find them unpersuasive. 

Moreover, a departure from the plain meaning of PACA is 

not warranted because we find no extraordinary showing of 

congressional intent otherwise in the legislative history. On 

the contrary, the legislative history supports our reading of 

PACA and its regulations. Like the statute and the 

regulations, the legislative history explicitly refers to two 

requirements for an unpaid supplier to qualify for trust 

benefits: (1) that the seller notify the buyer of its intention 

to preserve its rights and (2) that an agreement to extend 

the payment period not be beyond a reasonable time. See, 

e.g., H.R. Rep. No. 98-543, at 4 (1983), reprinted in 1984 

U.S.C.C.A.N. at 407-08 ("[T]he unpaid seller must accept 

the burden to preserve the trust by notifying both the 

Secretary and the commission merchant, dealer or broker 

within 30 days after expiration of the prompt payment date 

or date on which a payment instrument has been 

dishonored, or the trust benefits will be lost."); id. at 7, 

reprinted in 1984 U.S.C.A.A.N. at 410 ("[T]he committee 

does not intend the trust to apply to any credit transaction 

that extends beyond a reasonable period. . . . [T]he 

secretary is required to establish, through rulemaking, the 

time by which, the parties to a transaction must agree 

payment on a transaction must be made, to qualify it for 

coverage under the trust. An agreement for payment after 

such time will not be eligible to receive the benefits of the 

trust."); 49 Fed. Reg. 45735, 45739 (1984) ("The legislation 

is clear that an absolute precondition to pursuing trust 

assets held by a defaulting buyer or receiver is thefiling of 

a written notice by the seller, supplier or agent after a 

failure to pay within the prescribed periods has elapsed."). 

Finally, we reject CHR's argument that requiring strict 

compliance with the writing requirement, such that a seller 

loses it right to statutory benefits if an agreement to extend 

the payment term is not reduced to writing, furthers the 

purposes of the statutory scheme. According to CHR,

interpreting the writing requirement as a precondition to 

receiving trust benefits furthers the purposes of PACA by 

construing the trust to protect only those sellers who 

conduct their business in such a manner that complies 

with PACA and encourages prompt payment. Thus, CHR 

urges that "permitting sellers to orally extend payment 

 22 
terms without adverse effect on trust eligibility would result 

in, and in fact already resulted in, practices by sellers 

which are in direct contravention of the PACA and its 

purpose." Br. at 23. 

PACA makes a buyer's failure to tender prompt payment 

a violation, but it does not make a seller's failure to 

demand prompt payment a violation. After all, PACA does 

not preclude a seller from agreeing in writing to a payment 

term beyond 30 days, but only disqualifies such a seller 

from participating in the trust.12 See 7 C.F.R. SS 46.2 

(aa)(11), 46.46(e)(2). 

We recognize that, in instances such as the one 

presented here, our interpretation places those sellers who 

reduce to writing agreements to extend payment terms in 

no better position than those who do not. Nevertheless, 

because Congress established the PACA trust to protect 

unpaid sellers against buyers' failure to make prompt 

payment and their subordination of the sellers' claim to 

secured creditors, we believe that our interpretation 

furthers the statutory purpose. The primary purpose of the 

statute was to protect unpaid sellers vis-a-vis secured 

creditors, not to prefer certain unpaid sellers over others. 

IV. CONCLUSION 

For the foregoing reasons, we will affirm the district 

court's order denying CHR's motion to exclude Idahoan and 

Alsum from the universe of those qualified to receive trust 

benefits in this case. 

_________________________________________________________________ 

12. In urging this court not to follow Hull, CHR argues that the court 

failed to sanction sellers who do not conduct their business in accord 

with PACA's prompt payment requirements. In particular, CHR 

challenges the Hull court's conclusion that a buyer who orally agrees to 

extend a payment term thereby makes an arrangement to violate PACA 

without the corresponding recognition that the seller necessarily makes 

the same arrangement. According to CHR, the sanction for sellers who 

make an arrangement to violate PACA by orally agreeing to an extended 

payment term is the forfeit of its trust benefits. We reject this argument 

for the reasons discussed above. 

 23 
A True Copy: 

Teste: 

 Clerk of the United States Court of Appeals 

 for the Third Circuit 

 24