The PACA Law Perspective
I was recently interviewed by Red Book Credit Services for an article by Tom Burfield for NEWSflash and thought it would be helpful to reprint it for those of you who have not have an opportunity to read it. This article is reprinted with permission from Red Book Credit Services June 13, 2012, NEWSflash Produce Industry Business Journal, Vol. 143, Issue 2, Sec. A., Tom Burfield, Editor.
LEGAL ISSUES ABOUND IN THE PRODUCE INDUSTRY
Attorney's Role Takes on Added Urgency as Litigation Escalates
by Tom Burfield, NEWSflash Editor
Gone are the days when one's word or a handshake was enough to seal a deal in the produce industry. Today, if you don't ask an attorney to examine any important contract you enter into, agreement you sign or deal you make, you could be in for a very litigious ride. "For the most part, the produce industry has been an undisciplined industry in terms of documenting transactions and putting things in writing," said Larry Meuers, founder of Meuers Law Firm, Naples, Fla. But now, "The industry has completely changed," he said, sparked by a wave of consolidation on the buying end. Most major suppliers have fewer customers than they used to, and many of those customers are "large, sophisticated entities that require you to put agreements in writing," Meuers said. As a result, he said attorneys are needed today more than ever. And he should know. Meuers is a fourth generation produce industry member and a graduate of the United Fresh Produce Industry Leadership Program. He has dealt exclusively with produce companies for 23 years and has tackled produce-related issues "from field to fork." "There's a lot of room for disputes with a product that is deteriorating from the minute it gets picked," he said. "All the way down that chain, there are various issues that arise that produce companies need to be aware of." The Perishable Agricultural Commodities Act with its myriad regulations is just one of many reasons why any produce company would do well to maintain a relationship with an experienced attorney. An attorney can come in handy in drawing up various contracts, documentation of transactions and terms of agreement between growers and sales agents or between shipper and retailers. The result can be hundreds of thousands of dollars in losses if parties to an agreement draw up a contract on their own and omit a key provision, Meuers said. "We can help them clearly think what the terms are, based on our knowledge of the industry," he said. "We can really help sometimes close the gap and put the deal together." An attorney can help companies put language into a contract that meets their specific needs. For example, Meuers said his firm has come up with creative ways of dealing with salesmen's territories to make sure different parties don't overlap and sell the same customers.
An attorney also can help produce companies understand agreements their customers want them to sign relating to a product guarantee, including food safety and indemnification issues. "What a lot of produce sales companies don't realize is that their customers usually ask them to take on a much greater responsibility and guarantee of the product than the seller's insurance will cover," he said. An insurance policy, for example, might cover a seller for an injury that occurs as a result of normal product usage but not an injury caused by someone else's negligence. If a shopper slips and falls after stepping on a table grape on the floor of a grocery store, the supplier's insurance contract likely would not cover that injury. However, the contract the supplier signed with the retailer might not have that exclusion, Meuers said. "We can help walk our clients through those documents and let them know what kind of risk they're taking on," he said. Another situation where an attorney can provide a valuable service is in preparing an effective "act of God" - or "force majeure" - clause in an agreement that can help a seller obtain relief from a contract. "This is a huge area of concern and a huge area of litigation," he said. "We have many cases in our firm right now over those issues." Most of the litigation could have been resolved by clearer contract drafting, Meuers said.
Operating agreements, joint venture agreements or business deals where a couple of companies come together are other instances where having an attorney that understands the business and the best way to form that business is imperative. "We handle putting those deals together and litigation that breaks them apart," Meuers said. With many produce companies today forming their own transportation departments, it may behoove suppliers to have a lawyer available with experience in transportation law to help companies prepare proper documentation of their bills of lading and to draw up contracts with carriers and truck brokers, he said.
Having a lawyer on call is especially valuable to anyone who has to deal with the Perishable Agricultural Commodities Act, said Susan Bishop, an attorney who specializes in the produce industry for Pratt and Associates, Campbell, Calif. "Having a lawyer on hand is important because, to file a lawsuit for collections under PACA is very time sensitive," she said. "You can't delay." Issues pertaining to produce standards and labeling also may require a lawyer's guidance. Government agencies may conduct inspections in your facility to determine whether commodities are properly labeled, she said, so it's beneficial to have someone available who can help you preserve your rights in the event of such an inspection. Many clients look to Bishop to review contracts and to help deal with certain code sections relating to outside salespeople. It's a good idea to have a written contract defining terms and the commission base for a salesperson, and it's important to have a lawyer review that contract in advance, she said. Other employment issues also can arise, especially if you have field workers and must be concerned about providing a safe working environment, having water and sanitary facilities available and ensuring that they are given appropriate break times. There can be a lot of turnover on a ranch, she said. It's important to properly document who is hired and whether they are paid properly. Workers compensation insurance also can be a tricky area. If you don't have workers compensation insurance, she said, "You've got a big problem." Bishop advises anyone in business to put all agreements in writing - whether they're deals with business partners, employers, vendors or customers - so that there are fewer misunderstandings. "A lot of litigation could be avoided if people just put things in writing, and we knew the expectations were the same on both sides," she said.
Karen Caplan, president and chief executive officer at Frieda's Inc., Los Alamitos, Calif., and a client of Meuers, knows the value of having a good attorney. Caplan said she consults with her attorney about a lot of business issues, contracts and advice. Her feelings about having aclose working relationship with an attorney have changed over the years. "I was never a fan of spending hundreds of dollars per hour on an attorney, but with the advent of so many contracts, agreements and the complications of PACA (when a client goes bankrupt or there is a dispute), I now speak to my attorney on a regular basis and keep him abreast of what is going on in our business," she said. Wes Liefer started Pura Vida Farms in Brea, Calif., six years ago and looked for legal help in setting up the new company's partnership agreements. "Whenever you start a company, a partnership agreement is critical," he said. "In case of conflict or bankruptcy or anything like that, it's critical that you have a solid partnership agreement." Joel Young, an owner of Consolidated West Distributing Inc., Commerce, Calif., considers himself fortunate. "I've never had an action that required an attorney," he said. That's not to say that he never has consulted with one, though. "Anytime you're in a business - any type of business - if you don't have an attorney available to you, you're taking some real chances," he said.
Unfortunately, most people wait until they have a problem before they call in an attorney, Bishop said. "They would have been better off if they had done some prevention." Meuers said he goes by the "hit-by-a-bus" theory: "You have to put your affairs in order so that, if you got hit by a bus tomorrow, things would keep going." "More importantly," he said, "if the person you're dealing with gets hit by a bus, and you're putting in a lot of money and a lot of work based on some (oral) agreement . . . if something happened to them, what's going to happen?" Produce companies typically have more regulations to deal with than other companies because the products they work with are subject to myriad regulations, Bishop said. "Don't be afraid to spend a few dollars," she said. "A lot (of angst) could be avoided." If you're looking for an attorney involving a PACA matter, make sure the attorney has experience in that area, she advised. "The best thing for anybody to do is to try to get a referral from somebody who has used an attorney and find out what their knowledge and experience will be," Meuers said. Seek out an attorney who will work with other attorneys to solve the problem, not one who is known to "throw gas on the fire," he suggested. "You hire an attorney to try to solve a problem," he said. "You don't want to have that solution causing another problem so that you'll have to deal with litigation that won't end."