Sweet Potatoes Not So Sweet After All - Growers Not Exempt from PACA 
 

Published  on  8/18/2015  by  Spivey, Jackie

​On August 18, 2015, the United States Court of Appeals for the Fourth Circuit affirmed decisions from the United States District Court and the United States Bankruptcy Court for the Eastern District of North Carolina dismissing Perishable Agricultural Commodities Act (PACA), 7 U.S.C. §§  499a-499t  (2012), claims brought by a group of sweet potato growers against a farm credit secured lender and its borrower. The lender had a first lien on the accounts receivable of its borrower, Bissett Produce, Inc., a sweet potato seller. Bissett filed a voluntary Chapter 11 bankruptcy petition in early 2013, and the growers asserted claims in excess of $1,000,000 against Bissett based on potatoes the growers delivered to Bissett prior to the petition date for sale to third parties. The growers alleged they had trust rights under PACA that gave them a right to receive post-petition potato sale proceeds prior to any distribution to the secured lender.

On de novo review and affirming dismissal of the growers’ complaint by the Bankruptcy Court pursuant to Federal Rule of Civil Procedure 12(b)(6), the District Court rejected the argument that the growers were exempt from PACA’s notice requirements. The growers had argued that because Bissett was required to perfect the growers’ trust rights against third-party buyers, there was no need for the growers to perfect their own PACA trust rights against Bissett by giving written notice. The growers further argued that it was impossible for them to give such notice because they did not know the price for which Bissett would sell the potatoes at the time the potatoes were transferred to Bissett. The District Court disagreed with both arguments.

The Court of Appeals declined oral argument and issued an unpublished per curiam opinion finding no reversible error.  (View a copy here.)  Poyner Spruill continues to represent the secured lender in related litigation.

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Lisa Sumner practices in the areas of Bankruptcy and Commercial Litigation, and she is the Assistant Leader of our Financial Services Section. She is licensed and has practiced in the federal and state courts in North Carolina, South Carolina, and Virginia. 

 
 

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