ProducePay's Ben Kahrl Discusses Significance of Ninth Circuit Victory for PACA Protection
LOS ANGELES, CA - As the produce industry continues to evolve, ProducePay is marking a big win in ensuring the policies that protect suppliers are still in place. Continuing its business strategy of changing the game for fresh produce, the company recently prevailed in a legal case that extends the Perishable Agricultural Commodities Act (PACA) to cyber business by looking to uphold the spirit of what the act was meant to serve.
The Ninth Circuit overturned a trial court’s ruling to dismiss ProducePay’s lawsuit under PACA to enforce produce invoices for the sale of 1,600 cartons of avocados purchased through the company’s online platform—effectively reaffirming an understanding of PACA that had been called into question by the initial lawsuit.
“It is fair to say that this decision is consistent with the evolution of PACA as produce transactions become more digitized,” Ben Kahrl, Senior Vice President of Legal and Regulatory Affairs at ProducePay, explains. “Online marketing and transactions create more options for growers and distributors, and ultimately more choices for consumers. This is the beauty of our marketplace: more potential customers and trading partners, more availability of financing, and more flexible and efficient choices. But the system depends upon the liquidity of PACA rights: Growers need to be able to efficiently transfer PACA rights to get quicker access to the funds they need for their farms, and online sellers of the produce need to have the assurance that they are protected under PACA when a buyer fails to pay.”
The Ninth Circuit’s backing of ProducePay’s claim brings that protection back to a model that is on the rise in our industry: the online marketplace.
“PACA incentivizes the movement of fresh produce from the farms to the market in order to feed American families. ProducePay is better positioned than growers, especially foreign growers, to enforce PACA rights when buyers fail to pay for the produce they buy,” Ben shares.
Defaulting commercial buyers have tried to argue that ProducePay prohibits lenders from benefiting from the preferential payment provisions under PACA, but this, he tells me, is a misreading of the statute.
“ProducePay plays an important role in the industry, and allowing the trial court decision to stand would impact its ability to provide the platform services it offers for growers and distributors,” Ben points out.
It is this role in which the Ninth Circuit distinguished this case from previous decisions that utilized a “transfer of risk” analysis to determine if a transaction was a sale of produce or a loan. In this instance, Ben explained, ProducePay never advanced any money to the distributor who acquired the avocados but did not pay for them. Fresh produce is not a “loan” under PACA, and the Ninth Circuit also noted that the “transfer of risk” analysis is more appropriate for factoring transactions where a company acquires produce invoices rather than acquiring title to the produce itself.
PACA, as we in the industry are well aware, is essential for the produce industry, and recognizing those rights in the e-commerce context is crucial to our modernization.