On February 2, 2015, Lisa P. Sumner and Jill C. Walters obtained an order from the United States District Court for the Eastern District of North Carolina affirming the dismissal of claims brought against their client, AgCarolina Farm Credit, ACA, based on the Perishable Agricultural Commodities Act (“PACA”), codified at 7 U.S.C. §§ 499a-s. The underlying complaint was filed against AgCarolina and a sweet potato broker, Bissett Produce, Inc. AgCarolina was a secured creditor of Bissett with a first lien on its accounts receivable. Bissett filed a voluntary Chapter 11 bankruptcy petition in early 2013, and claims in excess of $1,000,000 were asserted against the debtor by a group of sweet potato growers who had transferred their crops to Bissett for sale to third parties. Following distribution of some, but not all, of the debtor’s sweet potato sale proceeds to AgCarolina for application to the secured debt, the growers filed an adversary proceeding against AgCarolina and Bissett seeking to enforce an alleged statutory trust under PACA giving the growers a superior interest in the sweet potato sale proceeds.
On de novo review and affirming dismissal of the growers’ complaint by the Bankruptcy Court pursuant to Federal Rule of Civil Procedure 12(b)(6), the District Court rejected the argument that the growers were exempt from PACA’s notice requirements. The growers had argued that because Bissett was required to perfect the growers’ trust rights against third-party buyers, there was no need for the growers to perfect their own PACA trust rights against Bissett by giving written notice. The growers further argued that it was impossible for them to give such notice because they did not know the price for which Bissett would sell the potatoes at the time the potatoes were transferred to Bissett. The District Court disagreed with both arguments.
The growers have appealed the District Court’s decision to the Fourth Circuit Court of Appeals, where it will present an issue of first impression.