* The Honorable John C. O’Meara, United States District Judge

for the Eastern District of Michigan, sitting by designation.

In the

United States Court of Appeals

For the Seventh Circuit ____________

No. 01-2470

PATTERSON FROZEN FOODS, INC.,

Plaintiff-Appellee,

v.

CROWN FOODS INTERNATIONAL, INC.,

a corporation f/k/a CROWN FOODSERVICE

GROUP, INC., and PHILIP H. ECKERT,

Defendants-Appellants.

____________

Appeal from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 99 C 7305—John C. O’Meara, Judge.*

____________

ARGUED FEBRUARY 19, 2002—DECIDED OCTOBER 15, 2002

____________

Before COFFEY, EASTERBROOK, and DIANE P. WOOD,

Circuit Judges.

DIANE P. WOOD, Circuit Judge. In May and June of

1998, plaintiff Patterson Frozen Foods sold seven bulk

shipments of frozen peas to Crown Foodservice Group,

a predecessor of defendant Crown Foods International.
2 No. 01-2470

Crown, owned by co-defendant Philip H. Eckert, defaulted

on the purchases. The sale of frozen peas and other perishable goods is regulated by the Perishable Agricultural

Commodities Act, 7 U.S.C. § 499 et seq. (PACA), a law

enacted to protect produce sellers during the Great Depression and modified from time to time since then. Under

certain circumstances, PACA allows produce sellers to

establish a constructive trust over funds owed for sales

on short-term credit and to recover against a responsible

shareholder of the debtor company. Because we find that

Patterson failed to observe the formalities necessary to

preserve its PACA trust rights by agreeing in writing to

extend time for payment, we reverse the judgment of the

district court.

I

Crown is a defunct Illinois corporation that once operated as a federally licensed produce dealer. Eckert was

Crown’s president and had check-signing authority. In

May and June of 1998, Patterson, a produce wholesaler,

sold Crown $58,600 worth of frozen peas. All of Patterson’s invoices contained the statutory language required

to preserve PACA trust rights and a payment term of net

30 days. Crown failed to pay. On December 21, 1998, after

informal attempts to collect its debt proved fruitless,

Patterson filed an administrative reparation claim pursuant to 7 U.S.C. § 499f with the United States Department of Agriculture (USDA). The USDA responded with

a form letter stating the prerequisites to an investigation

of the complaint and indicating its willingness to help

the parties reach an acceptable settlement.

Negotiations continued between Neil Morosa, Patterson’s

Vice-President of Finance, and Eckert’s son, Jason. On January 8, 1999, Jason faxed Morosa a proposed repayment

plan providing for eight monthly payments of $8,356.46
No. 01-2470 3

plus 8.5% interest on the outstanding balance, with the

first payment due February 8. Morosa faxed a reply that

afternoon in which he moved the payment dates to the

twentieth of each month beginning January 20 and adjusted the interest accordingly. Morosa’s signature appears at the bottom of the fax.

On January 11, Morosa informed the USDA of this

development. He stated that Crown “has proposed to pay

the remaining invoices totaling $66,851.65 with interest

at 8.5% over an eight month period, per the following

schedule.” After setting out a schedule identical to the

one he had faxed Jason, Morosa wrote, “We are agreeable

to this providing PACA will still be in force in case the

respondent defaults on its plan.” The next day, Morosa

faxed Jason a copy of the letter and indicated a bank account to which he should wire the January 20 payment.

Crown made its first payment, but its financial troubles

worsened and it sent only $2,000 on February 20. Three

days later Morosa wrote the USDA, stating that Patterson “did enter into the proposed agreement with respondent to pay the outstanding invoices,” but that, as Crown

had failed to make its second payment, Patterson now

considered the agreement void. Crown made further proposals to work out a revised payment plan, which Patterson rejected. On April 1, Patterson faxed a “Balance

Due” schedule with a revised listing of payment due dates

(through December 1999) and a place for Eckert to sign, but

Eckert refused. On April 29, 1999, the USDA issued a

reparation order in favor of Patterson for the amount

due plus interest at 10%. Two months later it suspended

Crown’s PACA license, causing Crown to cease operations.

Patterson then filed a four-count complaint seeking enforcement of the reparation order against Crown under

7 U.S.C. § 499g(b) (Count I), alleging a breach of contract

(Count II) and failure to account for assets under § 499b(4)
4 No. 01-2470

(Count IV) against Crown, and alleging that Eckert

breached his fiduciary duties as trustee of a statutory

trust under § 499e(c) (Count III). The parties stipulated

to judgment against Crown on Counts I and II. After a

bench trial, the district court found in favor of Patterson

on the two remaining counts, entering judgment against

both Crown and Eckert in the amount of $55,995. It also

awarded attorneys’ fees of $45,410 against both defendants.

II

PACA comprehensively regulates the nation’s produce

industry. It authorizes the Secretary of Agriculture to license those who deal in “[f]resh fruits and fresh vegetables

of every kind and character.” 7 U.S.C. § 499a(b)(4)(A). (We

do not know why frozen peas should be considered fresh

or perishable, but as the parties have not made a point

about this, we do not either.) Among its many provisions, PACA provides that perishable agricultural commodities received by a licensed dealer, as well as the

proceeds from sales of those commodities, are held in trust

for the benefit of unpaid suppliers until full payment

has been made. 7 U.S.C. § 499e(c)(2). This floating trust

is automatically created when the dealer accepts the

goods so long as the supplier complies with the specific

notice requirements set out in 7 U.S.C. § 499e(c) and

7 C.F.R. § 46.46(f). Greg Orchards & Produce, Inc. v.

Roncone, 180 F.3d 888, 890-91 (7th Cir. 1999). PACA

trust rights take priority over the interests of all other

creditors, including secured creditors. C.H. Robinson Co.

v. Trust Co. Bank, N.A., 952 F.2d 1311, 1315 (11th Cir.

1992). Thus, PACA gives sellers of perishable goods a

superior secured interest, just as a seller of durable goods

may perfect an interest in its property. (A perishable goods

dealer could of course take an Article 9 secured interest

in its produce, but as these items are usually sold and
No. 01-2470 5

consumed rapidly and spoil quickly, that interest would

not really be worth the bother.)

PACA trust rights may be enforced either through a

reparation order issued by the Secretary of Agriculture

and subsequent judicial enforcement, 7 U.S.C. § 499f & g,

or through a court action for breach of fiduciary trust, 7

U.S.C. § 499e(c)(5). The latter remedy permits recovery

against both the corporation and its controlling officers.

Golman-Hayden Co. v. Fresh Source Produce, Inc., 217 F.3d

348, 351 (5th Cir. 2000). The principal justifications Congress has given for granting such generous protection for

sellers of produce are (1) the need to protect small dealers who require prompt payment to survive and (2) the

importance of ensuring the financial stability of the entire produce industry. In re Magic Rests., Inc., 205 F.3d 108,

111 (3d Cir. 2000).

In return for its protections, PACA establishes strict

eligibility requirements. A PACA supplier must be selling produce on a cash or short-term credit basis. Greg

Orchards, 180 F.3d at 891. The Secretary of Agriculture

has determined that “the maximum time for payment

for a shipment to which [parties] can agree and still qualify for coverage under the trust is 30 days after receipt

and acceptance.” 7 C.F.R. § 46.46(e)(2). If a produce supplier enters a written post-default agreement with a dealer that extends the dealer’s time for payment beyond

30 days, the supplier becomes ineligible to assert its trust

rights. Greg Orchards, 180 F.3d at 892; In re Lombardo

Fruit and Produce Co., 12 F.3d 806, 809 (8th Cir. 1993). On

the other hand, an oral agreement for an extension or a

course of dealing allowing more than 30 days for payment

will not abrogate a PACA trust. Idahoan Fresh v. Advantage Produce, Inc., 157 F.3d 197, 205 (3d Cir. 1998); Hull

Co. v. Hauser’s Foods, Inc., 924 F.2d 777, 781-82 (8th Cir.

1991).
6 No. 01-2470

The principal dispute in this case is whether the postdefault dealings between the parties nullified Patterson’s

PACA trust rights. Our earlier decision in Greg Orchards,

which we are bound to follow, points the way to the resolution of the questions now before us. If Patterson and

Crown entered a written post-default agreement giving

Crown more than 30 days to pay for its peas, there is no

enforceable PACA trust. That conclusion in turn would

mean that Eckert was not subject to any fiduciary duty

derived from PACA (which is the only source of such a duty

alleged here). On the other hand, if the parties had no

agreement at all to extend the time for payment, or if

any such agreement was merely oral, then PACA remains in force and Eckert can be personally liable for

any breach committed by Crown. The district court

found that “[a]lthough several payment proposals were

exchanged between the parties, no written agreement

was executed to extend payment terms,” and concluded

from this that the PACA trust was still in force. We review the district court’s fact finding for clear error and

its legal conclusions de novo. NRC Corp. v. Amoco Oil Co.,

205 F.3d 1007, 1011 (7th Cir. 2000).

In Greg Orchards, a produce dealer, Merkel, failed to

make payments to three suppliers: Greg, Lange, and Plantation. Greg and Lange executed written agreements setting weekly payment schedules, while Plantation sent

Merkel an amortization schedule fixing monthly payments.

Merkel paid under both plans for about 14 months and

then defaulted. Greg Orchards, 180 F.3d at 889. At that

point, the suppliers sued under PACA. Reversing the

district court, this court held that Greg and Lange had

indisputably entered into written post-default agreements extending time for payment beyond 30 days, precluding them from recovering. Greg Orchards, 180 F.3d

at 892. Plantation’s claim was remanded to the district

court for determination of whether its amortization schedule was an enforceable written agreement. Id. at 892-93.
No. 01-2470 7

Patterson’s claim here is nearly identical to Plantation’s.

There is no formal executed contract between the parties,

but there is a written payment schedule which Morosa

sent to both Crown and the USDA. Both the January 11

letter to the USDA and the January 12 fax to Crown

declare that Patterson was “agreeable” to this schedule and

ask Crown to wire payment to a specific bank account.

Crown complied with its first payment. When it missed

the second payment, Morosa informed the USDA that

Patterson now considered the agreement void. The obvious

corollary to this statement is that Patterson had previously considered the agreement effective. It had agreed to

forebear from asserting its reparation claim, but only so

long as Crown continued to make payments under the

new plan. As in Greg Orchards, it is clear that the parties entered some sort of agreement.

Patterson argues that only a signed and executed “formal

written contract” can abrogate a created PACA trust.

Neither Greg Orchards nor any other prior decision

we have found clearly establishes exactly what is necessary to create a “written agreement” for purposes of PACA.

All of the cases rejecting the effect of mere oral agreements have involved nothing more than course-of-dealing

evidence demonstrating that a supplier has routinely

allowed the dealer more than 30 days to make payment. See

Hull Co., 924 F.2d at 778; Stowe Potato Sales, Inc. v.

Terry’s, Inc., 224 B.R. 329, 333 (W.D. Va. 1998); A & J

Produce Corp. v. CIT Group/Factoring, Inc., 829 F. Supp.

651, 655 (S.D.N.Y. 1993). On the other hand, the only

cases denying trust rights through post-default written agreements have involved formally executed documents. Greg Orchards, 180 F.3d at 892; Lombardo, 12

F.3d at 810; Israel v. Merrill, 812 So. 2d 347, 352 (Ala. Civ.

App. 2001). No court has had to resolve whether a written

agreement means merely a writing sufficient to satisfy
8 No. 01-2470

the Statute of Frauds or an actual executed agreement

signed by both parties and integrating all relevant terms.

If all that is required for an agreement to be “written” for

purposes of abrogating PACA rights is a document satisfying the Statute of Frauds, then Patterson is out of

luck. The faxes and letters in this case, signed by Morosa

as Patterson’s agent, reasonably identify the contract’s

subject matter and demonstrate agreement on payment

terms of $8,356.46 per month for eight months. The documents also state with reasonable certainty the unperformed promises in the contract, that Crown will pay on

the dates indicated, and that Patterson will forebear

from going forward with its PACA reparation action so

long as payments are forthcoming. See Restatement

(Second) of Contracts § 131; Consolidation Serv., Inc. v.

KeyBank Nat’l Ass’n, 185 F.3d 817, 819 (7th Cir. 1999).

Patterson argues that more should be required to abrogate a PACA trust, relying on the general proposition that

PACA is to be construed liberally in favor of sellers, and

that it should therefore receive the benefit of the doubt

in this dispute. See, e.g., Hull Co., 924 F.2d at 782. While

we accept the general principle, we also note that PACA

and PACA trust rights are designed to protect small

produce sellers who operate in a cash market and depend

upon prompt payment to survive. Patterson is not some

poor local pea farmer but a sophisticated vegetable wholesaler. To the extent it (or even a smaller company) chose

to bargain at arm’s length to create an alternate remedy,

it was at the same time choosing to opt out of the PACA

regime. Filing a PACA trust claim may be beneficial to

it in the short run, but if it prevails it might put one of

its large buyers out of business (because the USDA will

revoke the dealer’s license). Therefore, it might decide

in some instances to enter into extra-statutory arrangements even if this means relinquishing certain legal rights.
No. 01-2470 9

Another major objective of PACA is to avoid large financial collapses in the produce industry. The strict 30-day

time limits are purposely designed to bring a subperforming dealer to the attention of the USDA quickly, so

that it can act to resolve the problem or suspend the

dealer’s license. If one industry member is in financial

distress, not much is at stake. But if many large wholesalers work out long-term payment plans and extensions,

allowing a dealer to amass huge liabilities, that dealer’s

eventual bankruptcy or license revocation could cause

much more severe repercussions throughout the industry.

One would not want to reward the wholesalers who

helped create such a mess by then giving them a strong

right to recover their debts through superpriority in

bankruptcy or through trust suits piercing the corporate

veil.

Based on this analysis, we conclude that PACA rights

are lost whenever the parties enter into a written agreement that satisfies the generally applicable Statute of

Frauds. Nothing in either PACA itself or the policies that

lie behind it justifies the judicial creation of a rule that

can be satisfied only by a formally executed document

with the word “CONTRACT” typed at the top. Also supporting our position is the fact that a PACA trust can

be created through letters, invoices, or anything else

reduced to writing with no requirement of formality.

7 C.F.R. § 46.46(f)(1); In re Richmond Produce Co., 112 B.R.

364, 373 (Bankr. N.D. Cal. 1990). We see no reason why

modification of the trust should require more than its

creation.

With that rule of law established, the only thing left is

to decide whether we have proof of a written agreement

here. Patterson offers only minimal evidence to contest

the existence of writings evidencing a specific agreement. It

points to an April 1999 letter from Eckert to Patterson

where Eckert notes that several attempts were made to
10 No. 01-2470

reach satisfactory payment arrangements and that he

hopes the parties can come to some sort of agreement. But

the letter was written long after Crown breached the

relevant January agreement, and thus it has little or no

bearing on the original existence of the first written

agreement. The parties could have had an agreement in

January and February but still tried to work out a new

deal when the old one failed rather than force Patterson

to sue for breach.

Patterson also briefly contends that it entered negotiations only “because of the PACA Department’s Rules

and Procedures,” and that its written agreement was

without prejudice to its PACA rights. However, no such

rules and procedures have been introduced into evidence.

All that is before us is a letter from the USDA stating

that it will attempt to assist the parties in reaching a

mutually satisfactory settlement. This is boilerplate

and does not come close to establishing that the USDA

somehow compelled Patterson to negotiate a repayment

schedule or told it that agreeing to such a plan would

not implicate its rights to a PACA trust. As for the attempted reservation of rights, we conclude that private

parties do not have the power to modify the statutory

formalities that Congress put in place for the creation

and maintenance of an enforceable PACA trust.

In the end, the only possible conclusion to be drawn

from the evidence is that Patterson entered into a postdefault written agreement extending payment terms that

abrogated its PACA rights. To the extent the district

court found otherwise, its determinations were based on

a view of the law that we have rejected and as such

are clearly erroneous.

The defendants have also asked us to reverse the award

of attorneys’ fees entered against them. Because we are

reversing judgment on the only claim against Eckert, the
No. 01-2470 11

attorneys’ fee claim against him must be vacated. Patterson prevailed pursuant to a stipulated judgment against

Crown on some counts, however, and so we will vacate

the fee award against it and remand for recalculation

relating only to those counts (worthless though such a

judgment apparently is, as it appears that Crown has no

assets).

III

We conclude that a written agreement need not be

formally executed by both parties to abrogate PACA

trust rights and that the payment schedule and letters

in this case constitute a written agreement to permit

Crown to pay its obligations more than 30 days after

shipment in violation of PACA. We therefore REVERSE the

judgment of the district court and REMAND this case for

entry of judgment in favor of the defendants on Counts

III and IV and a recalculation of attorneys’ fees.

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—10-15-02