Paul Horton: PACA Trust Protection

There are PACA trust protections for both sellers and shippers.

PACA Trust Terms

In order to understand how the PACA trust protects you as a produce seller or shipper, it is helpful to know a few terms that are used to talk about PACA:

“PACA trust creditor”

The sellers or suppliers of produce which have taken the additional legal steps to obtain PACA trust protections are known as “PACA trust creditors.” Both US and foreign based produce sellers and suppliers of produce can qualify to become a PACA trust creditor.

“PACA trust debtor” – “Subject to the PACA trust”

Any person or entity required to be licensed under PACA which receive produce from a PACA trust creditor are known as a “PACA trust debtors”. All produce receivers with operations in the United States that either receive more than one ton of produce in a day from across state lines or from outside the US are subject to the rules of the PACA trust and are PACA trust debtors. All retailers that sell more than $230,000 of produce in a year at retail are also PACA trust debtors, including restaurants.

Although these businesses and traders are required to be licensed by the PACA Branch of the USDA, and they are in violation of the law if they do not obtain a license, these traders are still subject to the rules and restrictions of the PACA trust even if they fail to obtain a PACA license and their shippers can still qualify for PACA trust protections against these receivers. Even if your US produce receiver does not have a PACA license, you can still be protected by the PACA trust if the receiver is required to have the license. Produce receivers cannot avoid the PACA trust and its requirements by refusing to obtain a PACA license. Another way to describe a PACA trust debtor is to say that this trader is “subject to the PACA trust.”

“PACA trust assets”

As a PACA Attorney, we’ve talked about these things before.

Any asset, including cash, accounts receivable, real estate, equipment or any other assets that a PACA trust debtor has obtained or purchased through any funds or other assets that were obtained from trading in produce are known as a PACA trust asset. Even if an asset was not directly acquired from a produce transaction, it can still be a PACA trust asset. If a produce buyer uses cash generated from a produce sale to purchase a warehouse and then the warehouse is sold and the proceeds from the sale of the warehouse are used to purchase a farm, the farm is still a PACA trust asset.

What happens if the PACA trust debtor mixes PACA trust assets with assets that are not PACA trust assets? If a PACA trust debtor mixes PACA trust assets, which were obtained directly or indirectly from produce sales, with non-PACA trust assets, for example from sales of flour or meat, all of the assets that were mixed together can be used to pay an unpaid PACA trust creditors. So if a grocery store has one bank account into which it deposits the cash generated from sales of both produce and products which are not subject to the PACA protections, all the money in that bank account is considered part of the PACA trust.

If a PACA trust debtor wants to protect some assets that were obtained from sources other than produce from claims of PACA trust creditors, the PACA trust debtor must keep these assets strictly segregated from produce assets. If these two types of assets are combined together, to purchase another assets or in a common bank account, the entire asset is part of the PACA trust and must be used to pay PACA trust creditors. If a PACA trust debtor (or his banker or other creditor) claims that an asset is not a PACA trust asset, it is the PACA trust debtor (or the challenging creditor) that must convince a federal judge that no part of the asset was acquired directly or indirectly from a produce transaction.