Rebuking court decisions that eroded Perishable Agricultural Commodities Act trust protection for sellers of produce, a U.S. Department of Agriculture regulation protects marketers’ trust even if they negotiate post-default payment agreements.

The new rule went into effect April 13, and amended PACA regulations to allow a produce seller to enter into a scheduled agreement for payment of the past-due amount without losing trust eligibility.

“They made the changes that should have been made,” said Stephen McCarron, partner in McCarron & Diess, a Washington, D.C.-based law firm. “Now any post-default agreements do not waive or forfeit trust eligibility.”

“That is what the industry needed, and that was what the final rule said.”

However, McCarron said sellers still must sell on payment terms that are 30 days or less from delivery to qualify for trust eligibility.

Trust rights retained

The USDA rule clarifies that produce sellers retain their trust rights until they are paid in full. McCarron said court decisions as far back as the late 1980s had ruled that any written or oral post-default agreement with a creditor voided the seller’s PACA trust protection.

Court cases that weakened trust protection had cited PACA language that stipulate 30 days after acceptance as the maximum time allowed for payment that a seller can agree to and still qualify for trust coverage.

McCarron said the result of those court cases was that it became treacherous for produce sellers to talk to their customers about a past-due bill for fear of losing their trust protection.

However, the USDA said in the final rule that the agency’s interpretation was that language addresses pre-transaction agreements only, and not post-default discussions about payment.

What industry wanted

Scott Danner, chief operating officer of Liberty Fruit, Kansas City, Kan., said the final rule was what the industry had been wanting.

Before, if a customer defaulted on payment and asked a produce seller to extend terms for three months, for example, the produce seller could lose trust protection.

“If we said yes, we then — according to the courts — we gave away our PACA rights,” he said.

Danner said the authors of the PACA law did not intend for trust rights to be at risk as the courts had recently interpreted.

“The (authors of PACA) meant to try to preserve business and relationships, and I think that this rule will help,” Danner said.

The United Fresh Produce Association was pleased with the final rule, said Robert Guenther, senior vice president of public policy for Washington, D.C.-based United Fresh.

“It looks like they have done a good job of listening to what the industry was saying and really writing a rule that will work for all of us,” he said.

In the end, McCarron said the USDA dealt with the issue in a span of two years.

“It was done fairly efficiently, given the way these things work,” he said.