Food And Beverage Law Update: April 2016

Nathan Adams IV is a Partner and Joshua Aubuchon is an Associate in Holland & Knight's Tallahassee office John Decker is a Partner in Holland & Knight's Atlanta office Katherine Healy Marques is an Associate in Holland & Knight's New York office

FINANCE

PACA Liens Could Impact Financing Terms

The Perishable Agricultural Commodities Act (PACA) is a federal law enacted in 1930 with the goal of protecting suppliers and sellers of agricultural goods from the effects of nonpayment by certain third parties. PACA requires the establishment of a statutory trust for the benefit of unpaid suppliers or sellers of perishable agricultural commodities, such as fruits and vegetables or products. The statutory trust provides its beneficiaries with superior rights over other creditors, including secured creditors. As such, in lending transactions to purchasers of perishable goods, such as restaurants, secured creditors will try to mitigate the risk of unpaid PACA claims owed by their borrowers. In loan facilities to restaurant companies, secured lenders may require specific covenants in their loan documents requiring restaurant borrowers to provide timely notice of any PACA claims they receive from their suppliers. They also may require the establishment of reserves to cover the costs of any such claims.

The amount of the claim may include the cost of the goods themselves in addition to transaction costs such as shipping fees and taxes. Lenders providing loan facilities secured by real property will routinely require a mortgagee policy of title insurance. Frequently, the title insurer will exclude from coverage liens arising pursuant to PACA. If the lender will not accept an exclusion from coverage, the restaurant borrower may need to obtain a lien waiver from the supplier or a separate indemnity for the benefit of the insurer. Additionally, the lender may require an accounting of the borrower's supply contracts that could potentially result in PACA lien claims, and also require that the borrower establish that any such claims be paid current prior to closing. Such payments may be difficult to ascertain depending on the supplier payment schedule. Lenders and borrowers potentially subject to PACA lien claims should carefully consider the implications for financing structures and consult experienced legal counsel with knowledge of the PACA framework and related case law.

- John A. Decker

LABOR AND EMPLOYMENT

Court Finds Employees Legally Protected When Disparaging Employer Products

A recent decision by the U.S. Court of Appeals for the Eighth Circuit in Miklin Enterprises, Inc. v. National Labor Relations Board affirmed the 2014 National Labor Relations Board (NLRB) decision requiring a Jimmy John's franchise owner to, among other things, rehire workers who had posted flyers all around their neighborhood suggesting that Jimmy John's...

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