[Federal Register Volume 61, Number 176 (Tuesday, September 10, 1996)]
[Proposed Rules]
[Pages 47674-47680]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-23020]
========================================================================
Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
========================================================================
Federal Register / Vol. 61, No. 176 / Tuesday, September 10, 1996 /
Proposed Rules
[[Page 47674]]
DEPARTMENT OF AGRICULTURE
Agricultural Marketing Service
7 CFR Part 46
[Docket Number FV96-351]
RIN 0581-AB41
Amendments to the Perishable Agricultural Commodities Act (PACA)
AGENCY: Agricultural Marketing Service, USDA.
ACTION: Proposed Rule.
-----------------------------------------------------------------------
SUMMARY: The Department of Agriculture (USDA) invites comments on
proposed revisions to the PACA Regulations that are required in order
to implement legislative changes signed by President Clinton on
November 15, 1995 (Pub. L. 104-48). Specifically, the legislative
changes phase retailers and grocery wholesalers out of license fee
payments over a 3-year period; establish a one-time administrative fee
for new retailers and grocery wholesalers entering the program after
the 3-year phase-out period; increase license fees from $400 to $550
annually for all other licensees; grant USDA authority to adjust future
license fees through ``notice and comment'' rulemaking; eliminate the
requirement of filing notice of intent to preserve trust benefits with
USDA in the PACA trust; require USDA to receive a written complaint
before initiating an investigation; require additional USDA
investigation notification procedures; increase administrative
penalties; establish civil penalties as an alternative to revocation or
suspension of license; continue current filing fees for formal and
informal reparation complaints; explicit address the status of
collateral fees and expenses; clarify misbranding prohibitions; and
amend the provisions of PACA regarding the determination of responsibly
connected individuals.
DATES: Comments must be received by November 12, 1996.
ADDRESSES: Interested persons are invited to submit written comments
concerning this proposal. Comments must be sent to James R. Frazier,
Chief, Fruit and Vegetable Division, PACA Branch, Room 2095-So. Bldg.,
P.O. Box 96456, Washington, D.C. 20090-6456. All comments should
reference the docket number and the date and page number of this issue
in the Federal Register and will be made available for public
inspection in the PACA Branch during regular business hours.
FOR FURTHER INFORMATION CONTACT: James R. Frazier, Chief, PACA Branch,
Room 2095-So. Bldg., Fruit and Vegetable Division, AMS, USDA,
Washington, D.C. 20250, Phone (202) 720-4180.
SUPPLEMENTARY INFORMATION: This proposal is issued under authority of
section 15 of the PACA (7 U.S.C. 499o).
The license fee increase was signed into law by President Clinton
on November 15, 1995, as part of the PACA Amendments of 1995 (Pub. L.
104-48). Public Law 104-48 mandated an immediate increase in the
license fees. As a result of this mandate, license renewals and new
applications received after November 15, 1995, are subject to the $550
fee. Notice of the fee increase was published in the Federal Register
on December 27, 1995.
This rule has been determined to be significant for the purposes of
Executive Order 12866 and, therefore, has been reviewed by the Office
of Management and Budget.
This proposed rule has been reviewed under Executive Order 12988,
Civil Justice Reform. It is not intended to have retroactive effect.
This proposed rule will not preempt any State or local laws,
regulations, or policies, unless they present an irreconcilable
conflict with this rule. There are no administrative procedures which
must be exhausted prior to any judicial challenge to the provisions of
this rule.
Effects on Small Businesses
Pursuant to requirements set forth in the Regulatory Flexibility
Act (RFA) (5 U.S.C. 601 et. seq.), the Agricultural Marketing Service
(AMS) has considered the economic impact of this proposed rule on small
entities. The purpose of the RFA is to fit regulatory actions to the
scale of businesses subject to such actions in order that small
businesses will not be unduly or disproportionately burdened. Small
agricultural service firms have been defined by the Small Business
Administration (SBA) (13 CFR 121.601) as those whose annual receipts
are less than $5,000,000. The PACA requires commission merchants,
dealers, and brokers buying or selling fruits and/or vegetables in
interstate or foreign commerce who meet certain threshold requirements
to be licensed. There are approximately 15,300 PACA licensees.
Separating licensees by the nature of business, there are approximately
6,000 wholesalers, 4,750 retailers, 2,100 brokers, 1,200 processors,
550 commission merchants, 450 food service businesses, 150 grocery
wholesalers, and 50 truckers licensed under PACA. The license is
effective for 1 year unless suspended or revoked by USDA for valid
reasons [46.9 (a)-(h)], and must be renewed annually by the licensee.
Many of the licensees may be classified as small entities.
Wholesalers, processors, food service companies, grocery
wholesalers, and truckers are considered to be dealers and subject to a
license when they buy or sell more than 2,000 pounds of fresh and/or
frozen fruits and vegetables in any given day. Dealers whose fruit and
vegetable purchases or sales do not exceed the 2,000 pound threshold
are exempt from the license requirement. A retailer is considered to be
a dealer and subject to license when the invoice cost of its perishable
agricultural commodities exceeds $230,000 in a calendar year. Brokers,
negotiating the sale of frozen fruits and vegetables on behalf of the
seller, are exempt from licensing when the invoice value of the
transactions are below $230,000 in any calendar year.
Pursuant to Public Law 104-48, the base license fee for all
licensees, as set forth in these proposed regulations, was raised on
November 15, 1995, from $400 to $550 for all licensees, except for
retailers and grocery wholesalers. As reflected in the proposed
regulations, retailers and grocery wholesalers will no longer have to
pay license fees at the end of the 3-year phase-out period which began
on November 15, 1995. This change affects approximately 30 percent, or
about 4,900, of the firms licensed under PACA. During the first year,
after enactment of P.L. 104-48, from November 15, 1995, through
November 14, 1996, retailers and grocery wholesalers will have to pay
$400 for a new license, or for the
[[Page 47675]]
renewal of an existing license. For the second year of the phase-out
period from November 15, 1996, through November 14, 1997, they will pay
75 percent of that fee, or $300, for a license. During the last year of
the phase-out period, November 15, 1997, through November 14, 1998,
retailers and grocery wholesalers will pay 50 percent of the fee, or
$200 for a PACA license. After November 14, 1998, retailers and grocery
wholesalers will no longer be required to pay an annual license fee,
but they will be required to maintain a PACA license. At the time of
application for a new license, retailers and grocery wholesalers will
pay a one-time administrative fee of $100.
The increase of $150 in the base annual license fee, from $400 to
$550, for commission merchants, brokers and dealers (other than
retailers and grocery wholesalers) is considered nominal when averaged
over a 12-month period. The fee increase, where applicable, affects all
licensees regardless of size. Again, this proposed rule is needed
solely for the purpose of conforming the current regulations to P.L.
104-48; license fee changes were required by statute and implemented on
November 15, 1995. Projected annual income, based on the revised
license fees, will approximate $9,028,000 in fiscal year 1996,
$8,683,000 in fiscal year 1997, and $8,288,000 in fiscal year 1998.
Public Law 104-48 removed the previously existing statutory cap on
license fees other than those of retailers and grocery wholesalers, and
altered the previous legislated ceiling on operating reserves of the
PACA fund. After November 14, 1998, USDA has the authority to increase
fees through rulemaking, provided operating reserves fall below 25
percent of the projected annual program costs. USDA projects that the
initial increase in receipts from fees collected following enactment of
P.L. 104-48 will allow the PACA fund to build up operating reserves so
that no fee increase will be needed until fiscal year 2001, when PACA
operating reserves are expected to fall below that level.
The proposed rule, again pursuant to Public Law 104-48, increases
the penalty for late renewal of a license, and the penalty for
operating without a license. These penalties, which are applicable to
all entities operating subject to the PACA, are necessary to deter
licensees from operating in violation of the PACA. Any penalties for
violations of the PACA would be applied equitably.
A compliance guide which highlights the 1995 PACA legislation, and
a general compliance guide entitled ``PACA Fact Finder'' which explains
the rights and responsibilities of firms operating subject to the
provisions of the PACA, are available to all licensees, including small
businesses.
Accordingly, based on the information discussed above and in the
following discussion, it is determined that the provisions of this
proposed rule would not have a significant economic impact on a
substantial number of small entities.
Paperwork Reduction Act
The amendments to Public Law 104-48 set forth in this proposed rule
involves a change in the existing information collection and record
keeping requirements which were previously approved by OMB under the
provisions of 44 U.S.C. Chapter 35. In accordance with the Paperwork
Reduction Act of 1995, this notice announces AMS' intention to request
revisions to a currently approved information collection in support of
the Reporting and Record keeping Requirements Under Regulations (Other
Than Rules of Practice) Under the Perishable Agricultural Commodities
Act, 1930.
Title: Reporting and Record keeping Requirements Under Regulations
(Other Than Rules of Practice) Under the Perishable Agricultural
Commodities Act, 1930.
OMB Control Number: 0581-0031.
Expiration Date of Approval: May 31, 1999.
Type of Request: Revision of a currently approved information
collection.
Abstract: The PACA was enacted by Congress in 1930 to establish a
code of fair trading practices covering the marketing of fresh and
frozen fruits and vegetables in interstate or foreign commerce. It
protects growers, shippers, and distributors dealing in those
commodities by prohibiting unfair and fraudulent practices.
The law provides for the enforcement of contracts by providing a
forum for resolving contract disputes, and for the collection of
damages from anyone who fails to meet contractual obligations. In
addition, the PACA impresses a statutory trust on licensees for
perishable agricultural commodities received, products derived from
them, and any receivables or proceeds due from the sale of the
commodities for the benefit of suppliers, sellers, or agents that have
not been paid. An amendment to the PACA, enacted into law on November
15, 1995, reduced the record keeping and reporting burden imposed under
the trust provision by removing the requirement that trust claimants
file notices of intent to preserve trust benefits with the Department
of Agriculture. The burden is, therefore, being revised to remove the
record keeping and time requirements that were necessary for the filing
of trust claims. This action will decrease the time requirement by
43,091 total hours and the paperwork burden by 124,445 total annual
responses.
The PACA is enforced through a licensing system and is user-fee
financed through a license fee. All commission merchant, dealers, and
brokers engaged in business subject to the PACA must be licensed. The
license is effective for one (1) year unless withdrawn by USDA for
valid reasons, and must be renewed annually. Those who engage in
practices prohibited by the PACA may have their licenses suspended or
revoked.
The information collected from respondents is used to administer
licensing provisions under the PACA. The records maintained are used to
adjudicate reparation and administrative complaints filed against
licensees to determine the imposition of sanctions on firms and
responsibly connected individuals who have engaged in unfair trading
practices. We estimate the paperwork and time burden as follows:
Form FV-211, Application for License: average of 15 minutes per
application per response.
Form FV-231, Application for Renewal of License: Average of 5
minutes per application per response.
Regulations Section 46.13--Letters to Notify USDA of Changes in
Business Operations: Average of 5 minutes per notice per response.
Regulations Section 46.20--Records Reflecting Lot Numbers: Average
of 8.25 hours with approximately 1,000 record keepers.
Regulations Section 46.46(d)(2)--Waiver of Rights to Trust
Protection: Average of 15 minutes per notice with approximately 100
principals.
Regulations Sections 46.46(f) and 46.2(aa)(11)--Copy of Written
Agreement Reflecting Times for Payment: Average of 20 hours with
approximately 2,000 record keepers.
Estimate of Burden: The total public reporting burden for this
collection of information is estimated to average 8 hours per response.
Respondents: Commission merchants, dealers, and brokers engaged in
the business of buying, selling, or negotiating the purchase or sale of
fresh and/or frozen fruits and vegetables in interstate or foreign
commerce are required to be licensed under the PACA (7 U.S.C.
499(c)(a)).
[[Page 47676]]
Estimated Number of Respondents: 15,550.
Estimated Number of Responses per Respondent: 1.
Estimated Total Annual Burden on Respondents: 118,476 hours.
Comments are invited on: (a) whether the proposed collection of
information is necessary for the proper performance of the functions of
the agency, including whether the information will have practical
utility; (b) the accuracy of the agency's estimate of the burden of the
proposed collection of information including the validity of the
methodology and assumptions used; (c) ways to enhance the quality,
utility and clarity of the information to be collected; and (d) ways to
minimize the burden of the collection of information on those who are
to respond, including through the use of appropriate automated,
electronic, mechanical, or other technological collection techniques or
other forms of information technology. Comments may be sent to: Michael
A. Clancy, Head, License and Program Review Section, PACA Branch, Fruit
and Vegetable Division, Agricultural Marketing Service, U.S. Department
of Agriculture, Room 2715-South Building, P.O. Box 96456, Washington,
D.C. 20090-6456.
All responses to this notice will be summarized and included in the
request for OMB approval. All comments will also become a matter of
public record.
OMB is required to make a decision concerning the collection(s) of
information contained in these proposed regulations between 30 and 60
days after publication of this document in the Federal Register.
Therefore, a comment to OMB is best assured of having its full effect
if OMB receives it within 30 days of publication. This does not affect
the deadline for the public to comment to the Department on the
proposed regulations.
Background
The PACA, enacted in 1930, establishes a code of fair trading
practices covering the marketing of fresh and frozen fruits and
vegetables in interstate and foreign commerce. The PACA protects
growers, shippers, distributors, and retailers dealing in those
commodities by prohibiting unfair and fraudulent practices. The law
provides a forum to adjudicate private disputes alleging violations of
the PACA and awards damages against anyone who fails to meet
contractual obligations subject to the PACA. The law also imposes a
statutory trust on perishable agricultural commodities received but not
yet paid for, products derived from those commodities, and any
receivables or proceeds due from the sale of those commodities for the
benefit of unpaid suppliers or sellers.
Under the PACA, anyone buying and selling commercial quantities of
fruits and vegetables in interstate or foreign commerce must be
licensed. The cost of administering the PACA is defrayed primarily
through the license fees paid by those engaging in business subject to
the law. The law also imposes complaint filing fees which help finance
the program. Amendments to the PACA in 1988 permitted the Secretary to
assess a base annual license fee of $400, plus $200 for each branch
operation in excess of nine. The maximum aggregate annual license fee
for any firm could not exceed $4,000. Public Law 104-48 increased the
base license fee to $550 while retaining the branch fee and the maximum
aggregate for all applicants except retailers and grocery wholesalers
who are phased out of paying a fee over a 3-year period.
Public Law 104-48 added two new definitions to the law for types of
dealers: ``retailer'' and ``grocery wholesaler''. Accordingly, a change
would be made in section 46.2 in the definition of ``retailer'' as it
appears in the current regulations, and a new definition would be added
to the regulations for the term ``grocery wholesaler''. The definition
of ``retailer'' in the proposed regulations would be the same as that
adopted in Public Law 104-48, but would include a provision to make it
clear that occasional wholesale sales, defined as not more than 5
percent of the gross annual sales, would not remove a dealer from the
category of ``retailer''. The intent was that occasional wholesale
transactions should not remove an entity from the category of
``retailer''. The definition of ``grocery wholesaler'' would be the
same as that adopted by Public Law 104-48, but would include objective
criteria for determining the meaning of ``primarily engaged'' as that
term is used in the definition. This will enable an entity to more
readily determine whether it falls within the ``grocery wholesaler''
category.
The proposed definition of ``good faith'' would also be added to
the regulations since that term is used in Section 2 of Public Law 104-
48 in reference to collateral fees. The proposed definition is taken
from the Uniform Commercial Code article on Sales, section 2-103(b).
Public Law 104-48 provides that the good faith offer, solicitation,
payment or receipt of collateral fees is not, in and of itself, a
violation of the PACA. The proposed regulation points out that where
collateral fees would affect a material term of the agreement,
disclosure of the fees is required by the principle good faith.
Section 46.6 would be revised to conform with the fee structure
mandated by Public Law 104-48. Under the new fee structure, retailers
and grocery wholesalers, described earlier, are phased out of the
responsibility for annual license fee payments over a 3-year period. A
one-time administrative fee was established by Public Law 104-48 for
new retailers and grocery wholesalers entering the program after the 3-
year phase-out period. License fees for all other licensees are
increased from $400 to $550 annually. After the expiration of the 3-
year period, USDA is authorized to adjust future license fees through
notice and comment rulemaking.
Conforming changes are proposed for sections 46.9 and 46.10 as a
result of the increased penalties for late license renewals provided
Public Law 104-48. Sections 46.9 and 46.10 would also be revised to
make these sections applicable to entities subject to license which no
longer have to pay an annual license fee. As mandated by Public Law
104-48, the payment of renewal fees or accrued license fees is not
required of such entities after the phase-out period, but they are
subject to the $50 late application fee, and when they have violated
the PACA by operating without a license, they will have to submit the
required license application and pay the applicable fine. The proposed
regulation would implement these changes.
The House Agriculture Committee, in its Report (House Reports No.
104-207), directed USDA to review and revise the PACA regulations
relating to brokers in order to ``accurately reflect an increased role
as a purchasers agent''. The role of brokers has changed over the years
and increasingly the broker is engaged by the buyer. To address this
issue, we propose to revise sections 46.27 and 46.28, which describe
and establish the duties of a broker, to more accurately describe the
relationship of a broker to buyers and sellers, and to require that the
broker disclose on its confirmation or memorandum of sale the party
that engaged the broker to act in the negotiations. A broker is
``engaged'' by, and thus may have a closer relationship with, one of
the parties to the contract than with the other. The changes in these
sections are intended to recognize that the broker may not be a neutral
party and would make the broker's position relative to the parties
clear.
Section 46.45 is being modified to reflect the amendment to the
misbranding provisions requiring that only the first licensed handler
be held
[[Page 47677]]
responsible for the violation unless subsequent handlers had knowledge
of the misbranding and failed to correct it.
The Amendments also eliminate from the law the need for unpaid
produce suppliers to file trust notices with USDA in order to preserve
their rights to trust protection under the statutory trust provision of
the PACA. Therefore, paragraphs (d) and (e) of Sec. 46.46 of the
regulations would be revised to eliminate references to filing with
USDA. Paragraph (a) would be removed since it is unnecessary.
Accordingly, paragraphs (b) through (g) would be redesignated
paragraphs (a) through (f).
Redesignated paragraph (f) of section 46.46 has been reworded to
remove the referenced requirement for the filing of the notice with
USDA and to clarify the two methods available to preserve trust rights
and their filing requirements.
Redesignated paragraphs (f)(1)(ii) and (3)(ii) conform with the
statutory requirement that the notice of preservation of trust benefits
contain the terms of payment when the parties have agreed to terms
different from those established by the Secretary.
Redesignated paragraph (c)(2) would be reworded to make it clear
that there is no general duty resting upon all brokers to preserve the
trust benefits of their principals by filing trust notices. Rather the
duty attaches only to brokers, or others operating in a fiduciary
capacity, who have undertaken an obligation to ``collect and remit''.
The paragraph also reminds those who employ collect and remit agents
that they must preserve their right to trust benefits against such
agents by filing appropriate notices with such agents. The citation in
paragraph (e)(2) to paragraph (b)(1) would be conformed to the new
paragraph designation for this section.
The Amendments outline new requirements for USDA when pursuing a
disciplinary investigation of an alleged violation. USDA must have a
written notification of the alleged violation before initiating an
investigation. After receiving such a complaint, USDA would initiate an
investigation if warranted. The subject of the investigation would be
notified of the existence of the investigation and the nature of the
alleged violations. Section 46.17, which establishes the requirements
for inspection of records, would be revised to clarify that PACA
representatives are permitted access to licensee's records to
investigate petitions or complaints under section 6(a) of the PACA, and
written notifications under section 6(b) of the PACA.
New section 46.49 would be added to the proposed regulations to
describe what constitutes a written notification. In conformity with
the text of amended section 6(b) of the PACA, official USDA
certificates and trust notices are deemed written notifications, as are
written statements reporting or complaining of a PACA violation filed
by any officer or agency of any State or Territory having jurisdiction
over licensees or persons subject to license or any other interested
person who has knowledge of or information regarding a possible
violation other than an employee of an agency of USDA administering the
PACA. In conformity with the language used by Report 104-207 of the
House Committee on Agriculture, written notifications are equated with
complaints as that term is used in the PACA. The proposed regulation
also outlines investigative procedures relating to such complaints.
List of Subjects in 7 CFR Part 46
Agricultural commodities, Brokers, Penalties, Reporting and record
keeping requirements.
For the reasons set forth in the preamble, 7 CFR part 46 is amended
as follows:
PART 46--[AMENDED]
1. The authority citation for part 46 continues to read as follows:
Authority: Sec. 15, 46 Stat. 537; 7 U.S.C. 499o
2. In Sec. 46.2, paragraph (j) is revised and two new paragraphs
(hh) and (ii) are added to read as follows:
Sec. 46.2 Definitions
* * * * *
(j) Retailer means a person that is a dealer engaged in the
business of selling any perishable agricultural commodity at retail;
Provided, That occasional sales at wholesale shall not be deemed to
remove a dealer from the category of retailer if less than 5 percent of
annual gross sales is derived from wholesale transactions.
* * * * *
(hh) Good faith means honesty in fact and the observance of
reasonable commercial standards of fair dealing in the trade. The
principle of good faith requires that a party to a transaction disclose
the existence of any collateral fees and expenses to all other parties
to the transaction where the collateral fees and expenses affect a
material term of the agreement.
(ii) The term grocery wholesaler means a person that is a dealer
primarily engaged in the full-line wholesale distribution and resale of
grocery and related nonfood items (such as perishable agricultural
commodities, dry groceries, general merchandise, meat, poultry, and
seafood, and health and beauty care items) to retailers. However, such
term does not include a person described in the preceding sentence if
the person is primarily engaged in the wholesale distribution and
resale of perishable agricultural commodities rather than other grocery
and related nonfood items. This definition states two criteria in order
for an entity to be considered a grocery wholesaler:
(1) The entity must be primarily engaged, that is, have 50 percent
or greater of its annual gross sales, in the full-line distribution and
resale of grocery and related nonfood items. ``Full-line'' means that
the entity must be supplying the retailer with a wide range of products
such as the items specified. If the entity meets this condition, then
the entity will be considered a grocery wholesaler unless;
(2) The entity has more than 50 percent of its annual gross sales
in perishable agricultural commodities.
3. Sec. 46.6 is revised to read as follows:
Sec. 46.6 License fees.
(a) For retailers and grocery wholesalers making an initial or a
renewal application for license, the annual license fee is as follows:
(1) During the period November 15, 1995 through November 14, 1996,
the license fee is $400 plus $200 dollars for each branch or additional
business facility operated by the applicant in excess of nine. In no
case shall the aggregate annual fees paid by any retailer or grocery
wholesaler during such period exceed $4,000.
(2) The annual license fee during the period November 15, 1996
through November 14, 1997, is $300 plus $150 for each branch or
additional business facility operated by the retailer or grocery
wholesaler in excess of nine. In no case shall the aggregate annual
fees paid by any retailer or grocery wholesaler during such period
exceed $3,000.
(3) The annual license fee during the period November 15, 1997
through November 14, 1998, is $200 plus $100 for each branch or
additional business facility operated by any retailer or grocery
wholesaler in excess of nine. In no case shall the aggregate annual
fees paid by any retailer or grocery wholesaler during such period
exceed $2,000.
(4) No annual license fee will be required after November 14, 1998
for renewal of a license. However, a retailer or grocery wholesaler
making an initial
[[Page 47678]]
application for a license after November 14, 1998, shall pay a $100
administrative processing fee.
(b) For commission merchants, brokers, and dealers (other than
grocery wholesalers and retailers) the annual license fee is $550 plus
$200 dollars for each branch or additional business facility in excess
of nine. In no case shall the aggregate annual fees paid by any such
applicant exceed $4,000.
(c) The Director may require that fees be paid in the form of a
money order, bank draft, cashier's check, or certified check made
payable to ``USDA-AMS''. Authorized representatives of the Division may
accept fees and issue receipts.
4. In Sec. 46.9, paragraph (i) is revised to read as follows:
Sec. 46.9 Termination, suspension, revocation, cancellation of
licenses; notices; renewal.
* * * * *
(i) Under section 4(a) of the Act, at least 30 days prior to the
anniversary date of a valid and effective license, the Director shall
mail a notice to the licensee at the last known address advising that
the license will automatically terminate on its anniversary date unless
an application for renewal is filed supplying all information requested
on a form to be supplied by the Division, and unless the renewal fee
(if any is applicable) is paid on or before such date. If the renewal
application is not filed and/or the renewal fee (if required) is not
paid by the anniversary date, the licensee may obtain a renewal of that
license at any time within 30 days by submitting the required renewal
application and/or paying the renewal fee (if required), plus $50.
Within 60 days after the termination date of a valid and effective
license, the former licensee shall be notified of such termination,
unless a new license has been obtained in the meantime.
5. Sec. 46.10 is revised to read as follows:
Sec. 46.10 Nonlicensed person; liability; penalty.
Any commission merchant, dealer, or broker who violates the Act by
engaging in business subject to the Act without a license may settle
its liability, if such violation is found by the Director not to have
been willful but due to inadvertence, by submitting the required
application and paying the amount of fees that it would have paid had
it obtained and maintained a license during the period that it engaged
in business subject to the Act, plus an additional sum not in excess of
two hundred and fifty dollars ($250) as may be determined by the
Director.
6. Sec. 46.17 is revised to read as follows:
Sec. 46.17 Inspection of records.
(a) Each licensee shall, during ordinary business hours, promptly
upon request, permit any duly authorized representative of USDA to
enter its place of business and inspect such accounts, records, and
memoranda as may be material:
(1) in the investigation of complaints under the Act including any
petition, written notification, or complaint under section 6 of the
Act,
(2) to the determination of ownership, control, packer, or State,
country, or region of origin in connection with commodity inspections,
(3) to ascertain whether there is compliance with section 9 of the
Act,
(4) in administering the licensing and bonding provisions of the
Act,
(5) if the licensee has been determined in a formal disciplinary
proceeding to have violated the prompt payment provision of section
2(4) of the Act, to determine whether, at the time of the inspection,
there is compliance with that section.
(b) Any necessary facilities for such inspection shall be extended
to such representative by the licensee, its agents, and employees.
7. In Sec. 46.27, paragraph (a) is revised to read as follows:
Sec. 46.27 Types of broker operations.
(a) Brokers carry on their business operations in several different
ways and are generally classified by their method of operation. The
following are some of the broad groupings by method of operation. The
usual operation of brokers consists of the negotiation of the purchase
and sale of produce either of one commodity or of several commodities.
A broker is usually engaged by only one of the parties, but in
negotiating a contract the broker acts as a special agent of first one
and then the other party in conveying offers, counter offers, and
acceptances between the parties. Once the contract is formed, and the
confirmation issued, the broker's duties are usually ended, and the
broker is not the proper party to whom notice of breach or of rejection
should be directed. However, a broker receiving notice has a duty to
promptly convey the notice to the proper party. Frequently, brokers
never see the produce they are quoting for sale or negotiating for
purchase by the buyer, and they carry out their duties by conveying
information received from the parties between the buyer and seller
until a contract is effected. Generally, the seller of the produce
invoices the buyer, however, when there is a specific agreement between
the broker and its principal, the seller invoices the broker who, in
turn, invoices the buyer, collects, and remits to the seller. Under
other types of agreements, the seller ships the produce to pool buyers,
and the broker as an accommodation to the seller invoices the buyers,
collects, and remits to the seller. Also, there are times when the
broker is authorized by the seller to act much like a commission
merchant, being given blanket authority to dispose of the produce for
the seller's account either by negotiation of sales to buyers not known
to the seller or by placing the produce for sale on consignment with
receivers in the terminal markets.
* * * * *
8. In section 46.28, paragraph (a) is revised to read as follows:
Sec. 46.28 Duties of brokers.
(a) General. The function of a broker is to facilitate good faith
negotiations between parties which lead to valid and binding contracts.
A broker who fails to perform any specification or duty, express or
implied, in connection with any transaction is in violation of the Act,
is subject to the penalties specified in the Act, and may be held
liable for damages which accrue as a result thereof. It shall be the
duty of the broker to fully inform the parties concerning all proposed
terms and conditions of the proposed contract. After all parties agree
on the terms and the contract is effected, the broker shall prepare in
writing and deliver promptly to all parties a properly executed
confirmation or memorandum of sale setting forth truly and correctly
all of the essential details of the agreement between the parties,
including any express agreement as to the time when payment is due. The
confirmation or memorandum of sale shall also identify the party who
engaged the broker to act in the negotiations. If the confirmation or
memorandum of sale does not contain such information, the broker shall
be presumed to have been engaged by the buyer. Brokers do not normally
act as general agents of either party, and will not be presumed to have
so acted. Unless otherwise agreed and confirmed, the broker will be
entitled to payment of brokerage fees from the party by whom it was
engaged to act as broker. The broker shall retain a copy of such
confirmations or memoranda as part of its accounts and records. The
broker who does not prepare these documents and retain copies in its
files is failing to prepare and maintain complete and correct records
as required by the Act. The broker who does not deliver copies of these
documents to all parties
[[Page 47679]]
involved in the transaction is failing to perform its duties as a
broker. A broker who issues a confirmation or memorandum of sale
containing false or misleading statements shall be deemed to have
committed a violation of section 2 of the Act. If the broker's records
do not support its contentions that a binding contract was made with
proper notice to the parties, the broker may be held liable for any
loss or damage resulting from such negligence, or for other penalties
provided by the Act for failing to perform its express or implied
duties. The broker shall take into consideration the time of delivery
of the shipment involved in the contract, and all other circumstances
of the transaction, in selecting the proper method for transmitting the
written confirmation or memorandum of sale to the parties. A buying
broker is required to truly and correctly account to its principal in
accordance with section 46.2(y)(3). The broker should advise the
appropriate party promptly when any notice of rejection or breach is
received, or of any other unforeseen development of which it is
informed.
* * * * *
9. In Sec. 46.45, the introductory text is revised to read as
follows:
Sec. 46.45 Procedures in administering section 2(5) of the Act.
It is a violation of section 2(5) for a commission merchant,
dealer, or broker to misrepresent by word, act, mark, stencil, label,
statement, or deed, the character, kind, grade, quality, quantity,
size, pack, weight, condition, degree, or maturity, or State, country,
region of origin of any perishable agricultural commodity received,
shipped, sold, or offered to be sold in interstate or foreign commerce.
However, a person other than the first licensee handling misbranded
perishable agricultural commodities shall not be held liable for a
violation of the Act by reason of the conduct of another if the person
did not have knowledge of the violation or lacked the ability to
correct the violation.
* * * * *
10. In Sec. 46.46, paragraph (a) is removed, paragraphs (b) through
(g) are redesignated as paragraphs (a) through (f), and newly
redesignated paragraphs (c), (e)(2), and (f) are revised to read as
follows:
Sec. 46.46 Statutory trust.
* * * * *
(c) Trust benefits. (1) When a seller, supplier or agent who has
met the eligibility requirements of paragraphs (e) (1) and (2) of this
section, transfers ownership, possession, or control of goods to a
commission merchant, dealer, or broker, it automatically becomes
eligible to participate in the trust. Participants who preserve their
rights to benefits in accordance with paragraph (f) of this section,
remain beneficiaries until they are paid in full.
(2) Any licensee, or person subject to license, who has a fiduciary
duty to collect funds resulting from the sale or consignment of
produce, and remit such funds to its principal, also has the duty to
preserve its principal's rights to trust benefits in accordance with
paragraph (f) of this section. The responsibility for filing the notice
to preserve the principal's rights is obligatory and cannot be avoided
by the agent by means of a contract provision. Persons acting as agents
also have the responsibility to negotiate contracts which entitle their
principals to the protection of the trust provisions: Provided, That a
principal may elect to waive its right to trust protection. To be
effective, the waiver must be in writing and separate and distinct from
any agency contract, must be signed by the principal prior to the time
affected transactions occur, must clearly state the principal's intent
to waive its right to become a trust beneficiary on a given
transaction, or a series of transactions, and must include the date the
agent's authority to act on the principal's behalf expires. In the
event an agent having a fiduciary duty to collect funds resulting from
the sale or consignment of produce and remit such funds to its
principal, fails to perform the duty of preserving its principal's
rights to trust benefits, it may be held liable to the principal for
damages. A principal employing a collect and remit agent must preserve
its rights to trust benefits against such agent by filing appropriate
notices with the agent.
(e) Prompt payment and eligibility for trust benefits.
* * * * *
(2) The maximum time for payment for a shipment to which a seller,
supplier, or agent can agree and still qualify for coverage under the
trust is 30 days after receipt and acceptance of the commodities as
defined in Sec. 46.2(dd) and paragraph (a)(1) of this section.
* * * * *
(f) Filing notice of intent to preserve trust benefits. (1) Notice
of intent to preserve benefits under the trust must be in writing, must
include the statement that it is a notice of intent to preserve trust
benefits and must include information which establishes for each
shipment:
(i) The names and addresses of the trust beneficiary, seller-
supplier, commission merchant, or agent and the debtor, as applicable,
(ii) The date of the transaction, commodity, invoice price, and
terms of payment (if appropriate),
(iii) The date of receipt of notice that a payment instrument has
been dishonored (if appropriate), and
(iv) The amount past due and unpaid.
(2) Timely filing of a notice of intent to preserve benefits under
the trust will be considered to have been made if written notice is
given to the debtor within 30 calendar days:
(i) After expiration of the time prescribed by which payment must
be made pursuant to regulation,
(ii) After expiration of such other time by which payment must be
made as the parties have expressly agreed to in writing before entering
into the transaction, but not longer than the time prescribed in
paragraph (e)(2) of this section, or
(iii) After the time the supplier, seller or agent has received
notice that a payment instrument promptly presented for payment has
been dishonored. Failures to pay within the time periods set forth in
paragraphs (f)(2)(i) and (ii) of this section constitute defaults.
(3) Licensees may chose an alternate method of preserving trust
benefits from the requirements described in paragraphs (f)(1) and (2)
of this section. Licensees may use their invoice or other billing
statement to preserve trust benefits. The alternative method requires
that the licensee's invoice or other billing statement, given to the
debtor, contain:
(i) The statement: ``The perishable agricultural commodities listed
on this invoice are sold subject to the statutory trust authorized by
section 5(c) of the Perishable Agricultural Commodities Act, 1930 (7
U.S.C. 499e(c)). The seller of these commodities retains a trust claim
over these commodities, all inventories of food or other products
derived from these commodities, and any receivables or proceeds from
the sale of these commodities until full payment is received.''; and
(ii) The terms of payment if they differ from prompt payment set
out in section 46.2(z) and (aa) of this part, and the parties have
expressly agreed to such terms in writing before the affected
transactions occur.
* * * * *
11. A new Sec. 46.49 is added to read as follows:
Sec. 46.49 Written notifications and complaints
(a) The term written notification, as used in section 6(b) of the
Act, means:
[[Page 47680]]
(1) any written statement reporting or complaining of a PACA
violation(s) filed by any officer or agency of any State or Territory
having jurisdiction over licensees or persons subject to license, or
any other interested person who has knowledge of or information
regarding a possible violation, other than an employee of an agency of
USDA administering this Act or a person filing a complaint under
Section 6(c);
(2) any written notice of intent to preserve the benefits of the
trust established under section 5 of this Act; or
(3) any official certificate(s) of the United States Government or
States or Territories of the United States.
(b) Any written notification may be filed by delivering it to any
office of USDA or any official thereof responsible for administering
the Act. A written notification which is so filed, or any expansion of
an investigation resulting from any indication of additional further
violations of the Act found as a consequence of an investigation based
on written notification or complaint, shall also be deemed to
constitute a complaint under section 13(a) of this Act.
(c) Upon becoming aware of a complaint under Section 6(a) or 6(b)
of this Act, the Secretary will determine if reasonable grounds exist
for an investigation of such complaint for disciplinary action. If the
investigation substantiates the existence of violations, a formal
disciplinary complaint may be filed by the Secretary as described under
Section 6(c)(2) of the Act.
(d) Whenever an investigation, initiated as a result of a written
notification or complaint under Section 6(b) of the Act, is commenced,
or expanded to include new violations, notice shall be given by the
Secretary to the subject of the investigation within thirty (30) days
of the commencement or expansion of the investigation. Within one
hundred and eighty (180) days after giving initial notice, the
Secretary shall provide the subject of the investigation with notice of
the status of the investigation, including whether the Secretary
intends to issue a complaint under Section 6(c)(2) of this Act,
terminate the investigation, or continue or expand the investigation.
Thereafter, the subject of the investigation may request in writing, no
more frequently than every ninety (90) days, a status report from the
Chief of the PACA Branch who shall respond thereto within fourteen (14)
days of receiving the request. When an investigation is terminated, the
Secretary shall, within fourteen (14) days, notify the subject of the
investigation of the termination. In every case in which notice or
response is required under this subsection such notice or response
shall be accomplished by personal service or by posting the notice or
response by certified mail to the last known address of the subject of
the investigation.
Dated: September 4, 1996.
Eric M. Forman,
Acting Director, Fruit and Vegetable Division.
[FR Doc. 96-23020 Filed 9-9-96; 8:45 am]
BILLING CODE 3410-02-P