Customer? You May Be Able to Get Paid
are not infrequent occurrences in the food and retail industries.
For example, the liquidation of the Furr’s supermarket chain
and the reorganization of Fleming, the big wholesaler. In most cases
trade creditors either get nothing or just cents on the dollar. Moreover,
bankruptcy trustees have become much more aggressive at asserting
preference claims or denying reclamation claims. What’s an
unsecured creditor, namely you, to do?
in most cases there isn’t much you can do except keep your eyes
out for troubled accounts and think COD. However, distributors of
fresh fruits and vegetables are a special case. Thanks to the Perishable
Agricultural Commodities Act, known as the PACA, distributors of fresh
fruits and vegetables are a special class of creditors who stand almost
at the front of the creditor’s line right behind those friendly
folks at the IRS. In fact, produce vendors stand in front of the secured
creditors such as banks! The PACA does this by creating a “trust” in
the products sold by the fruit and vegetable vendors. The trust consists
either of the products themselves or the payment for the products.
claiming a preference under the PACA usually do so on the Proof of
Claim form filed during the bankruptcy. Keep in mind that recovery
under the PACA is limited to fresh fruits and vegetables including
frozen and fresh cut varieties. Canned and other types of processed
fruit and vegetable products are not covered by the PACA. Furthermore,
payment terms cannot exceed 30 days. If a vendor’s invoice
for lettuce is Net 45, then there will be no PACA preference claim.
are other technical requirements pertaining to PACA coverage, whether
or not bankruptcy is involved. Zackler & Associates can help
both produce vendors and buyers review their PACA compliance issues
and how to assert their rights under the PACA.
There are Criminal Prosecutions for Violation of the FDCA Act
it’s extremely rare, every now and then there is a criminal
prosecution for violation of the Food, Drug & Cosmetic Act (“FDCA”).
Recently, Robert Lingon, the owner of a health food company, pled
guilty to mail fraud for marketing “low fat” donuts that
were, in fact, conventional, very high fat donuts. While we doubt
that any readers of Food & Marketing Law Update would ever engage
in an intentional violation of the FDCA, Mr. Lingon’s conviction
does prompt a few observations:
course, there is always the potential for civil liability both in
terms of the FDA’s authority to seek injunctive relief and
third party product liability lawsuits. These types of civil actions
are usually based on strict liability.
Although we don’t expect to see very many (if any) food or dietary
supplement executives or their companies doing the “perp walk,” in
the age of bioterrorism and BSE we expect that some cases (which
in the past would have been handled using only civil remedies) in
the future may result in criminal prosecution.
Rigged Frozen Coke Marketing Test Prompts
Settlement Offer and Criminal Investigation
drink giant Coca Cola is feeling the fallout from evidence that its
employees rigged market acceptance tests of Frozen Coke. A lawsuit
filed by a former Coke manager alleged that Coke marketing employees
improperly influenced marketing tests conducted in Burger King
restaurants three years ago by paying customers to purchase Value
Meals featuring Frozen Coke in test markets. The inflated sales
data generated from the tests prompted Burger King franchisees
to purchase over $65 Million in Frozen Coke equipment for their
restaurants. Sales of Frozen Coke in Burger King outlets have not
met franchisees’ expectations.
Coke has admitted that its employees rigged the tests and have offered
over $20 million to Burger King and its franchisees to settle any
accusations have also prompted a criminal investigation from a Federal
Grand Jury in Atlanta. Coke acknowledged the criminal probe in July
and has pledged to cooperate with the government. Burger King has
also acknowledged receiving subpoenas from the Grand Jury.
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