Produce suppliers claim Allens Inc. owes them more than $19 million under the Perishable Agricultural Commodities Act, but the bankrupt company is objecting to $18.3 million of that amount, alleging suppliers did not follow proper procedures.
The canned food company based in Siloam Springs, Ark., filed for bankruptcy in October, listing total debts of between $100 million and $500 million and between 1,000 and 5,000 creditors, according to court records.
Of those creditors, 52 have filed PACA claims. Only two of the PACA claims remain unchallenged by Allens Inc. — a $122,600 claim by Kreider Foods Inc., Lancaster, Pa., and a $2,400 claim by Triple S Farms, Hydro, Okla.
A Feb. 11 hearing is set regarding Allens’ objection to the $18.3 million in PACA claims it contends should be dismissed.
Chicago attorney Jason Klinowski is special PACA counsel for Allens Inc. in the bankruptcy case. His 54-page objection, filed Jan. 13, alleges that fresh produce suppliers failed to properly preserve their rights under PACA in a variety of ways.
There are 52 companies with a total of $19,172,855 in PACA claims filed in the Allens case. Allens listed 16 ways 50 of the companies allegedly failed to preserve their PACA protection, including:
- setting payment terms beyond the 30-day maximum set by PACA;
- charging interest in excess of the legal limit;
- charging for goods that don’t qualify for PACA protection; and
- failing to deduct ancillary expenses such as transportation and fuel costs from PACA claims.
Klinowski said about $6.4 million of the objectionable claims relate to transportation costs and other ancillary expenses. The objection to those is based on a rarely used exception to the general rule that such expenses listed on the face of an invoice are entitled to PACA protection as a sum owing, the Chicago attorney said.
If a produce seller wants to recover ancillary costs as part of a PACA trust claim, Klinowski said there are two options.
“They can either specifically ask for those costs in a contract, or decline to enter into a pre-transaction agreement, and thus use invoices only to document the transaction," Klinowski said.
On the buy side of the industry, companies purchasing produce can limit their PACA trust liability by using a pre-transaction agreement for ancillary expenses, Klinowski said. Ancillary expenses billed in such a way must be paid, but they are not covered by PACA.