The following summary of a disputed sales transaction resulted in an Administrative Hearing and Decision and Order under the Perishable Agricultural Commodities Act (PACA). The parties’ names are redacted intentionally.
A Los Angeles wholesaler purchased 480 cartons of 14 count bunched broccoli from a shipper in Santa Barbara County, about a four hour transit trip from shipping point to contract destination. The partial load of broccoli shipped on October 12, 2013 and was first inspected on October 14, 2013. The USDA inspection revealed all 480 cartons were unloaded and accepted with the pulp temperatures ranging from 30° to 31°F with 9% discolored bud clusters and the broccoli grading U.S. 1 with 100% good amount of pack ice. (Link) The shipper was notified of the results of USDA inspection and based on the broccoli meeting contract specifications, full payment was requested. There was no temperature recording unit placed on this shipment and no TRU download was ever introduced into the hearing record.
What Happened Next?
The buyer requested a USDA Appeal Inspection because it was his opinion that the initial USDA inspection was not reflective of the quality/condition of the broccoli. On October 16th (2 days after the original inspection) an Appeal USDA inspection was performed and reflected additional condition defects of 25% discolored bud clusters and 2% crushed bud clusters, with pulp temperatures ranging from 32° to 33°F. The USDA reversed the original inspection as to grade and condition.(Link) This USDA Appeal Inspection now established a technical breach of contract on the part of the shipper, with the buyer now refusing to pay the shipper the full FOB invoice.
PACA Complaint filed by shipper against buyer for full FOB invoice value:
In the PACA formal proceeding, the shipper argued several different points: 1) That abnormal transportation was involved with this FOB shipment, namely freezing pulp temperatures inconsistent with the shipper’s bill of lading instructions. 2) That the buyer never rejected the broccoli and through the act of unloading accepted the broccoli and 3) Asserted that the USDA Appeal Inspection was too remote (delayed 2 days) and was not reflective of what the load looked like at the time of the initial inspection.
The shipper submitted evidence from the University of California, Davis stating as follows: “Freezing Injury: Broccoli will freeze if stored a -6°C (30.6°F) to -1.0°C (30°F). This may also occur if salt is used in the liquid-ice cooling slurry. Frozen and thawed areas on the florets appear very dark and translucent, may discolor after thawing and are very susceptible to bacterial decay.”
In addition, the PACA added in their Decision and Order that “We note that USDA publication, Protecting Perishable Foods During Transport by Truck, Agricultural Handbook Number 669,5 states that the highest freezing point for broccoli is 30.9°F(-0.6°C).”
Also critical in this proceeding was that the buyer failed to establish any affirmative defenses or submit any rebuttal evidence.
PACA Decision and Order:
Though the first inspection was overturned as to quality and condition, the pulp temperatures were held to be correct. Based on the USDA pulp temperatures and the evidentiary citations submitted by the shipper through sworn affidavits in the formal action, the PACA awarded the shipper the full amount of the FOB invoice. Please see attached Decision and Order. (Link)
Two other items highlighted in this Decision and Order are also worth mentioning: 1) Rejections must be clear and unmistakable, and unloading the broccoli from the trailer constituted acceptance by the buyer. 2) Because shipper had printed language on their invoice “a monthly finance charge of 1.5 % will be assessed on invoices not receipted within stated terms”, the shipper was also awarded pre-judgment interest at 18% per annum (1.5% per month).
This disputed transaction was a less than one day shipment of $19 per carton broccoli and because the shipper knew their rights and remedies under PACA, they were able to recover the total FOB invoice, including interest at 18% from the original shipment date and reimbursement of its $500 filing fee for the PACA formal complaint. Similar to this aforementioned situation, I encourage you and your colleagues to continually strive to understand your rights and remedies and thereby increase your negotiating position and always look to maximize the return of dollars back to your company.
Should you have any questions concerning this Decision and Order or have any questions concerning sales contracts or have a need for assistance in reviewing USDA or CFIA inspections, please email me at TommyO@wga.com or call me at (949) 885-2269.