[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