Baiardi Food Chain v. United States of America

*
Hon. Richard D. Cudahy, United States Senior Circuit
Judge for the United States Court of Appeals for the Seventh
Circuit, sitting by designation.
PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 06-1124
BAIARDI FOOD CHAIN,
Petitioner
v.
UNITED STATES OF AMERICA;
UNITED STATES DEPARTMENT OF AGRICULTURE
THE SECRETARY OF AGRICULTURE
Respondents
On Petition for Review of an Order of United States
Department of Agriculture
(D-01-0023)
Judicial Officer: William G. Jenson
Submitted Under Third Circuit LAR 34.1(a)
January 19, 2007
Before: SLOVITER, RENDELL, and CUDAHY,*
Circuit Judges
(Filed: March 2, 2007)
Kevin P. Claffey
Gentile & Dickler
New York, NY 10016
Attorney for Petitioner

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1
Baiardi was licensed under the PACA from June 8, 1948
until its license terminated when it failed to pay the annual PACA
renewal fee on June 8, 2001.
2
Stephen M. Reilly
United States Department of Agriculture
Office of General Counsel
Washington, DC 20250-1400
Attorney for Respondents
OPINION OF THE COURT
SLOVITER, Circuit Judge.
At issue in this petition for review is whether post-default
agreements, entered into by a company licensed under the
Perishable Agricultural Commodities Act (“PACA”), 7 U.S.C.
§§ 499a-499s, and its produce suppliers, which set the payment
for the produce at an amount lower than the invoice price, bar
the United States Department of Agriculture (“USDA”) from
enforcing the prompt payment provisions of the PACA. Baiardi
Chain Food Corp. (“Baiardi”)1 appeals the final order of the
Secretary of the USDA, entered on September 2, 2005, which
found Baiardi in violation of section 2(4) of the PACA, 7 U.S.C.
§ 499b(4), for failure to fully and promptly pay its suppliers of
perishable agricultural commodities. The Secretary sanctioned
Baiardi by ordering publication of the facts and circumstances of
Baiardi’s violations. We will affirm the decision of the
Secretary and deny the petition for review.
I.
The material facts of this case are not in dispute. The
Agricultural Marketing Service of the USDA initiated an
investigation of Baiardi after receiving several complaints
between October 2000 and January 2001 from suppliers seeking
reparation for unpaid produce shipments. In January 2001,
Carolyn Shelby, a PACA marketing specialist with the USDA,

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conducted an investigation of Baiardi’s business practices and
met with David Axelrod, the owner of the corporation. Axelrod
provided Shelby with hundreds of unpaid invoices. The invoices
revealed that Baiardi failed to make full payment promptly for
343 lots of perishable agricultural commodities from sixty-seven
sellers, amounting to a debt owed of $830,728.39.
In January 2001, Baiardi notified its sellers (in most
instances the producers of the agricultural products) that it was
going out of business. Baiardi negotiated work-out agreements
with several of the sixty-seven producers to whom Baiardi owed
payment. Pursuant to those work-out agreements, the produce
sellers accepted payment of approximately fifty cents on the
dollar for the money Baiardi owed. The producers were willing
to resolve Baiardi’s indebtedness quickly because, due to
Baiardi’s impending demise, several companies feared they
would receive none of the money they were owed if they chose
not to settle. At least two other accounts were settled through
court dispositions.
On August 2, 2001, the Associate Deputy Administrator,
Fruit and Vegetable Programs, Agricultural Marketing Service
of the USDA issued a complaint charging Baiardi with violating
section 2(4) of the PACA. On October 16, 2001, Baiardi filed
an answer denying the allegations in the complaint. Chief
Administrative Law Judge (ALJ) Marc R. Hillson conducted a
hearing in New York on February 2, 2004 and May 25, 2004,
during which the agency called four witnesses and entered
seventy-six exhibits into evidence. Baiardi called no witnesses
but entered fifty-five exhibits into evidence through cross-
examination of the agency’s witnesses.
On April 8, 2005, the ALJ issued his decision and order,
finding that Baiardi, from March 2000 through January 2001,
failed to make full payment promptly for 343 lots of perishable
agricultural commodities from sixty-seven producers in violation
of section 2(4) of the PACA. On July 27, 2005, Baiardi
appealed the ALJ Decision to the Secretary of the Department of
Agriculture. On September 2, 2005, the Judicial Officer (“JO”),
acting for the Secretary, affirmed the ALJ’s decision and ordered
that the facts and circumstances of Baiardi’s violations be

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published, pursuant to the Secretary’s authority under 7 U.S.C. §
499h(a). That section provides that if the buyer has “violated
any of the provisions of [section 2 of the PACA, including 2(4)]
. . . the Secretary may publish the facts and circumstances of
such violation and/or, by order, suspend the license of such
offender for a period not to exceed ninety days, except that, if
the violation is flagrant or repeated, the Secretary may, by order,
revoke, the license of the offender.” Id. Because Baiardi had
failed to pay its license renewal fee, its PACA license terminated
in June 2001; as such, the only sanction open to the Secretary
was the publication of the facts and circumstances of the case.
Baiardi filed a motion for reconsideration which the JO denied.
Baiardi filed a timely petition for review with this Court.
II.
This Court has jurisdiction to review the Secretary’s final
order pursuant to 28 U.S.C. § 2342. Judicial review of the
decision of an administrative agency is narrowly confined.
Pursuant to the Administrative Procedure Act, this Court reviews
final decisions by the Secretary of Agriculture under a
deferential standard. 5 U.S.C. § 706 states, in pertinent part:
To the extent necessary to decision and when presented,
the reviewing court shall . . . .
(2) hold unlawful and set aside agency action, findings,
and conclusions found to be–
(A) arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law;
(B) contrary to constitutional right, power,
privilege, or immunity; (C) in excess of statutory
jurisdiction, authority, or limitations, or short of
statutory right . . . .
This applies in full force to judicial review of sanctions
imposed under the PACA. Wayne Cusimano, Inc. v. Block, 692
F.2d 1025, 1030 (5th Cir. 1982). “The choice of sanctions
imposed by the Secretary of Agriculture, through [the] Judicial
Officer, may not be overturned in the absence of a patent abuse
of discretion.” American Fruit Purveyors, Inc. v. United States,
630 F.2d 370, 374 (5th Cir. 1980).

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Congress enacted the PACA in 1930 to promote fair
trading practices in the produce industry. See Tanimura &
Antle, Inc. v. Packed Fresh Produce, Inc., 222 F.3d 132, 135 (3d
Cir. 2000) (citing Idahoan Fresh v. Advantage Produce, Inc., 157
F.3d 197, 199 (3d Cir. 1998)). Under the PACA, every dealer of
perishable agricultural commodities is required to be licensed by
the Secretary of Agriculture. Id.; see also Allfred’s Produce v.
United States Dep’t of Agriculture, 178 F.3d 743, 745 (5th Cir.
1999) (citing 7 U.S.C. § 499c(a)). “Congress intended to protect
small farmers and growers who were especially vulnerable to the
practices of financially irresponsible . . . ‘buyers.’” Tanimura,
222 F.3d at 135; see also Idahoan Fresh, 157 F.3d at 199.
Under the PACA, it is unlawful for buyers of produce to
fail to make prompt payment for a shipment of produce. Section
2(4) of the PACA states:
It shall be unlawful in or in connection with any
transaction in interstate or foreign commerce:
(4) For any commission merchant, dealer, or
broker to make, for a fraudulent purpose, any false
or misleading statement in connection with any
transaction involving any perishable agricultural
commodity which is received in interstate or
foreign commerce by such commission merchant,
or bought or sold, or contracted to be bought, sold,
or consigned, in such commerce by such dealer, or
the purchase or sale of which in such commerce is
negotiated by such broker; or to fail or refuse truly
and correctly to account and make full payment
promptly in respect of any transaction in any such
commodity to the person with whom such
transaction is had . . . .
7 U.S.C. § 499b(4) (emphasis added).
A buyer’s failure to tender prompt payment triggers civil
liability and the possible revocation of the buyer’s PACA license
which is required by 7 U.S.C. § 499c. The PACA is “admittedly
and intentionally a ‘tough’ law.” S. Rep. No. 84-2507 (1956), as
reprinted in 1956 U.S.C.C.A.N. 3699, 3701, which

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is designed to protect the producers of perishable
agricultural products who in many instances must send
their products to a buyer or commission merchant who is
thousands of miles away. It was enacted to provide a
measure of control over a branch of industry which is
almost exclusively interstate commerce, is highly
competitive, and presents many opportunities for sharp
practice and irresponsible business conduct.
Zwick v. Freeman, 373 F.2d 110, 116 (2d Cir. 1967) (citing
H.R.Rep. No. 84-1196 (1955), as reprinted in 1956
U.S.C.C.A.N. 3701, 3701).
Congress amended the PACA in 1984 to add a section
providing for a statutory trust to benefit unpaid suppliers of fresh
produce. 7 U.S.C. § 499e(c). The statutory trust provision was
created in response to congressional concern over the “increase
in the number of buyers who failed to pay, or were dilatory in
paying, their suppliers, and the impact of such payment practices
on small suppliers who could not withstand a significant loss or
delay in receipt of monies owed.” Tanimura, 222 F.3d at 134-35
(holding that because sellers who qualified as PACA trust
beneficiaries “demonstrated the likelihood of dissipation of trust
fund assets and the likelihood of irreparable harm, the District
Court should have granted the injunction sought.”)
The trust consists of the perishable agricultural
commodities received, all inventories of food or other products
derived from the perishable commodities received, and any
receivables or proceeds from the sale of such commodities or
products. The trust holds all proceeds and receivables from the
sale of produce by a dealer until the dealer pays the seller the full
purchase price. 7 U.S.C. §499e(c). The trust thus provides an
additional remedy for sellers against a buyer failing to make
prompt payment. Idahoan Fresh,157 F.3d at 199 (citing H.R.
Rep. No. 98-543, at 2 (1983), as reprinted in 1984 U.S.C.C.A.N.
405, 406). “Prior to this amendment, unpaid produce suppliers
were unsecured creditors vulnerable to the buyers’ practice of
granting other creditors a security interest in their inventory and
accounts receivable.” Id. (citing Tom Lange Co. v. Lombardo
Fruit & Produce Co. (In re Lombardo Fruit & Produce Co.), 12

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F.3d 806, 808-09 (8th Cir. 1994)).
Section 2 of the PACA imposes several strict
requirements on regulated buyers and sellers. As stated above,
section 2(4) mandates that all regulated parties “make full
payment promptly” for all produce purchases. 7 U.S.C. §
499b(4). By regulation promulgated by the Secretary of
Agriculture, “full payment promptly” requires that produce
buyers make payment within ten days of the date on which the
produce is accepted, unless otherwise expressly agreed in
writing by the parties to the sale prior to the time of the
transaction. 7 C.F.R. §§ 46.2(aa)(5), (11). Regulated parties
must adhere to the “full payment promptly” provisions of the
PACA to keep the transaction under the provisions of the trust.
However, the regulations permit the parties to agree in writing
before the transaction to other payment periods that do not
exceed thirty days and still remain under the trust. 7 C.F.R. §
46.46(e)(2).
The protection of the trust is forfeited by an agreement
between the parties for payment that exceeds thirty days. See,
e.g., American Banana v. Republic Nat’l Bank of N.Y., N.A.,
362 F.3d 33, 47 (2d Cir. 2004) (stating that sellers who agree to
payment periods exceeding thirty days forfeit trust protection).
The issue before us is whether such agreements have any effect
on the Secretary’s authority to penalize violations of the section
2 of the PACA pursuant to 7 U.S.C. 499h(a).
Baiardi asserts that the “full payment promptly”
requirement found in section 2(4) of the PACA is not applicable
to transactions in which the produce buyer and seller agree to an
amount owed below the invoice price. It is undisputed that
Baiardi and certain of its produce sellers agreed to a payment
plan that amounted to approximately fifty cents on the dollar for
every dollar owed. The parties also agreed to extend the
payment period beyond the thirty-days set forth in the
regulations. 7 C.F.R. § 46.2(aa)(5). In fact, Baiardi often made
final payment of the reduced agreed-upon amount considerably
beyond the thirty-day period.
The Courts of Appeals have consistently agreed with the

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Secretary’s position that, absent a written agreement prior to the
transaction, “full payment promptly” is payment of the entire
invoice within ten days of acceptance of the produce. In
Allfred’s Produce, the Court of Appeals for the Fifth Circuit
affirmed the JO’s decision revoking petitioner’s PACA license
for failing to make full payment promptly to nineteen sellers for
eighty-six lots of perishable agricultural commodities worth
$336,153.40. In so holding, the Court stated, “‘full payment
promptly’ means payment within 10 days of the date on which
the produce is accepted, or payment within the time specified in
writing by prior agreement of the parties.” Allfred’s Produce,
178 F.3d at 747. In Havana Potatoes Corp. v. United States, 136
F.3d 89, 91-92 (2d Cir. 1997), the Court of Appeals for the
Second Circuit relied primarily on past-due invoices found in
petitioner’s files, which provided the USDA with evidence that
over $1.9 million was owed to produce suppliers. Although the
debts were eventually paid, they were settled after the PACA-
specified dates, representing a violation under PACA. Id.
Baiardi has not provided any evidence that it entered into
written agreements with any of its suppliers prior to the
transactions. From the record, it appears that Baiardi, after
defaulting on its payment, told its suppliers it was going out of
business, and then settled some of its outstanding debts via
work-out agreements.
In American Banana, 362 F.3d at 45-46, the Court of
Appeals for the Second Circuit held that a post-default
agreement between a seller of perishable agricultural
commodities and a dealer, which extends the dealer’s time for
payment beyond thirty days, will result in a loss of the seller’s
PACA trust protection, whether the agreement is oral or in
writing. The Court stated, “where, as here, a seller agrees –
orally or in writing – to a payment period exceeding thirty days,
it forfeits trust protection.” Id. at 47. In holding that the trust
provision was not intended to protect produce sellers who did
not insist upon prompt payment within thirty days, the Second
Circuit asserted, “[s]ellers who are willing and able to enter into
such [credit] agreements – whether pre-transaction or post-
default – neither need nor deserve the elevated priority they
receive under PACA’s trust provision.” Id. at 45.

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Relying on American Banana, Baiardi argues that by
agreeing to terms outside the scope of the PACA, the sellers
opted out of PACA and thus are no longer protected by its
provisions. It concludes that, therefore, the Secretary is barred
from enforcing the full and prompt payment provisions of the
PACA and does not have jurisdiction to commence disciplinary
action against Baiardi.
Baiardi’s argument notwithstanding, American Banana is
distinguishable from the instant appeal. In American Banana,
the issue before the court was whether, by entering into post-
default agreements with the produce dealer extending the time of
payment more than thirty days after the transaction, the produce
sellers forfeited their rights to PACA trust protection. In this
appeal, it is the Secretary of Agriculture, not the producer, who
initiated the complaint against the buyer. See 7 U.S.C. §
499f(c)(2). The issue before us is not whether the produce
sellers are entitled to trust protection but whether the
arrangements between the parties regarding payment affect the
Secretary’s power to enforce the statute. Although the court in
American Banana held that the sellers lost PACA trust
protection by entering into post-default agreements with the
buyers, it did not purport to hold that such agreements deprive
the Secretary of his statutory right to bring a complaint against a
delinquent buyer. Such a holding would be contrary to the plain
language of the statute and the regulations. They make clear that
“[p]arties who elect to use different times of payment than [that]
set forth in [7 C.F.R. § 46.2aa(5) – ten days] must reduce their
agreement to writing before entering into the transaction . . . .” 7
C.F.R. § 46.2aa(11), and upon determination that the buyer has
“violated any of the provisions of [section 2 of the PACA,
including 2(4)] . . . the Secretary may publish the facts and
circumstances of such violation and/or, by order, suspend the
license of such offender for a period not to exceed ninety days,
except that, if the violation is flagrant or repeated, the Secretary
may, by order, revoke, the license of the offender.” 7 U.S.C.
499h(a).
Thus, although parties may agree to payment periods
beyond thirty days, the consequence, as the Second Circuit held
in American Banana, is loss of PACA trust protection. Such

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post-default agreements do not operate to divest the Secretary of
his right to “publish the facts and circumstances” of the buyer’s
violations. As the ALJ’s decision in this case notes, “‘it has
been repeatedly held that a seller’s agreement to accept partial
payment because of the buyer’s insolvency does not constitute a
full payment or negate a violation of the PACA.’” App. at 26
(quoting In re Full Fail Produce, Inc., 52 Agric. Dec. 608, 619
(1993)).
Moreover, at least two courts of appeals have explicitly
held that even if creditors agree to accept partial payment as a
settlement, the merchant still has not “paid fully” under the Act.
Finer Food Sales Co., Inc. v. Block, 708 F.2d 774, 782 (D.C.
Cir. 1983) (“Such a belated payment of a small portion [seven
percent] of a licensee's obligation does not constitute the making
of the ‘full payment promptly’ that section 2(4) requires.”);
Marvin Tragash Co., Inc. v. United States Dep’t of Agriculture,
524 F.2d 1255, 1258 (5th Cir. 1975) (“This partial payment
[fifteen percent] under the plan entered into some months after
the purchases can not be characterized as either full or prompt
payment as required by the Act . . . .”). In both cases, the
licensees were found guilty of “flagrant and repeated” violations
of the Act and were prohibited from employment in the industry
for one year.
Baiardi’s interpretation of the statute would eliminate the
ability of the Secretary to enforce proper buying and selling
practices. The JO, in affirming the ALJ’s decision, articulated
the illogic of Baiardi’s argument as follows:
Respondent’s contention that a produce seller’s choice to
accept half payment, when the other choice is to accept
no payment at all, renders the situation not governable by
the PACA and the debtor not subject to disciplinary
action, is not consistent with the PACA, the Regulations,
or case law. Indeed, the type of situation faced by
Respondent’s produce sellers – accepting half payment or
nothing – is just the type of situation the PACA was
designed to prevent.
App. at 26-27.

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It is also important to note that not all of Baiardi’s
producer sellers agreed to partial payment and actually received
the money owed. “A substantial amount of the $830,728.39 in
non-payments alleged in the Complaint remains unpaid.” App.
at 27-28. Baiardi contends that only $30,000 remains due but, as
the ALJ noted, “Even if all payments were made under the work-
out agreements, and even with the two court ‘dispositions,’ over
$570,000 of the $830,000 in non-payments alleged in the
complaint remains unpaid.” App. at 10. Assuming that the
major portion of the non-payments referred to by the ALJ have
been paid, it is undisputed that none of the sixty-seven produce
sellers were fully or promptly paid according to the provisions of
the PACA. We agree with the analysis of the JO that the parties
have not limited the Secretary’s authority to enforce the PACA.
III.
Based on the foregoing facts and law related to this case,
we will deny the petition for review.

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