Dealers, the Revenue vs Regulatory Test, and Recovery, Kale Yeah!: Uncovering the Scope of Licensing Requirements Under Georgia's Dealers in Agricultural Products Act

• Jurisdiction: Georgia,United States,Federal
• Publication year: 2021
• Citation: Vol. 72 No. 5

Dealers, the Revenue vs Regulatory Test, and Recovery, Kale Yeah!: Uncovering the Scope of Licensing Requirements Under Georgia's Dealers in Agricultural Products Act

E. Tate Crymes

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Dealers, the Revenue vs Regulatory Test, and Recovery, Kale Yeah!: Uncovering the Scope of Licensing Requirements Under Georgia's Dealers in Agricultural Products Act^*

I. Introduction

A deal between a shipper from California, unlicensed in Georgia to deal in agricultural products, and a grower of agricultural products based in Georgia, specifically for produce like kale and collard greens, turned sour and ended in a lawsuit.¹ Relying on the previously uninterpreted provisions of Georgia's Dealers in Agricultural Products Act (the Act),² potential for abuse by unlicensed dealers in agricultural products was ripe and ready to harvest.³ In response to three certified questions from the federal judiciary, the Georgia Supreme Court narrowly interpreted an exception to the license requirement for agricultural products dealers, holding that license registration under the Act is required for the purpose of regulating in the interest of the public and unlicensed dealers may not sue to enforce contracts to carry out business regulated under the act.⁴ The shipper, an agricultural products dealer based in California, tried to enforce a contract for the sale of goods in Georgia.⁵ This dealer allegedly

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violated the Act because the dealer did not hold a dealer in agricultural products license in Georgia.⁶ To resolve the claims brought forth by the parties, the United States District Court for the Southern District of Georgia needed to interpret several provisions of the Act which had not been previously interpreted by Georgia's appellate courts.⁷

Deep-rooted concepts regarding licensure in Georgia under a statute enacted to regulate in the public interest were the focus of the three certified questions to the Georgia Supreme Court.⁸ These questions prompted the court to apply well-established precedent dating back to the late-1800s to a modern scenario by putting a new spin on well-recognized concepts.⁹ The first question focused on the scope of an exception to the Act and led the court to examine the purposes of the Perishable Agricultural Commodities Act (PACA),¹⁰ the Act's federal counterpart.¹¹ The second question addressed whether the Act was a revenue raising statute or a regulatory statute in the public interest.¹² The third question examined whether a dealer who fails to obtain a license can recover on a contract to carry out business regulated by the Act.¹³

II. Factual Background

San Miguel Produce Inc. (San Miguel) and L. G. Herndon Jr. Farms (Herndon Farms) entered into multiple agreements regarding agriculture in September 2014. One specific agreement was the "Grower-Shipper Agreement" (GSA). Herndon Farms, a Georgia corporation, was responsible for growing and supplying the produce ordered by San Miguel under the GSA. Herndon Farms agreed to complement orders with crops from other growers if it could not meet the demand for produce by San Miguel under the GSA. San Miguel agreed to purchase Herndon Farms' produce. The GSA required Herndon Farms to deliver the produce to a packing and processing facility located in South Georgia, ROBO Produce, LLC (ROBO), owned jointly by San Miguel and Herndon Farms.¹⁴

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The GSA stipulated that the agreement "shall be construed pursuant to and in accordance with the laws of the State of Georgia."¹⁵ At no time during the agreement did San Miguel obtain a Georgia agricultural products dealer license. When Herndon Farms was not able to deliver sufficient produce to meet San Miguel's demands, San Miguel started sending its own produce to the ROBO facility from California.¹⁶

Herndon Farms and San Miguel terminated their business relationship in February 2016.¹⁷ San Miguel filed a complaint in the U.S. District Court for the Southern District of Georgia against Herndon Farms for breach of the GSA and Herndon Farms filed, in the Superior Court of Toombs County, a separate action against San Miguel for breach of the GSA.¹⁸ This latter action was removed to federal court, and the actions were consolidated.¹⁹ Both parties filed cross-motions for partial summary judgment.²⁰ The district court noted that the case turned upon the application of Georgia law to the GSA.²¹ The district court certified three questions to the Georgia Supreme Court regarding the scope of the Act.²² The supreme court unanimously answered the three certified questions.²³

The first question focused on whether an entity that purchases produce, processes it, then markets, sells, and ships the produce qualifies as a dealer in agricultural products or meets an exception under the Act because the entity occasionally grows the produce that it sells.²⁴ The supreme court held that under O.C.G.A. § 2-9-15(a)(1),²⁵ this type of entity does qualify under the Act as a dealer in agricultural products and does not fit the exemption.²⁶ The Act exempts specific transactions, not the dealer as a whole, if the dealer supplies the produce it has grown.²⁷ The second question addressed whether the Act was enacted to raise revenue or regulate in the public interest.²⁸ As to the second question, the supreme court held that the licensing requirements of the Act are

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regulatory in the public interest and not a mere revenue raising measure.²⁹ Lastly, the third question discussed whether a dealer can recover on a contract to carry out business regulated under the Act if that dealer fails to obtain a license.³⁰ The court held that if a dealer fails to acquire a license under the Act, the dealer may not recover under a contract that relates to the Act.³¹

III. Legal Background

A. Certified Question One: Farmers in the Sale of Agricultural Products Grown by Themselves

Since the passage of the Georgia Dealers in Agricultural Products Act in 1956, only one other case has interpreted the provisions of the Act.³² However, modeled on a prior federal law, the Perishable Agricultural Commodities Act of 1930 (PACA), Georgia's Act is occasionally called the "Mini-PACA."³³

1. Georgia's Mini-PACA³⁴

The Act manages transactions between dealers and producers of agricultural products in Georgia.³⁵ The provisions of the Act implement a mechanism for the licensing of dealers in agricultural products and regulate the formulation of contracts by those dealers in Georgia.³⁶ A "dealer in agricultural products," as defined by O.C.G.A. § 2-9-1(2),³⁷ is required to hold a valid license from the Commissioner of Agriculture³⁸ before transacting in Georgia as an agricultural dealer.³⁹ The Act has an exception, O.C.G.A. § 2-9-15(a)(1), which states that the Act does not

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apply to farmers selling agricultural products grown by themselves.⁴⁰ Once approved, the applicant must pay the license fee in the amount determined by the Department of Agriculture and the applicant must submit a surety bond.⁴¹ The maximum amount of the licensing fee is $400,⁴² and the bond amount ranges from $10,000 to $230,000.⁴³ The Commissioner will then grant the license after the dealer meets these requirements.⁴⁴

Under the Act, dealers must keep records of shipments, and if disputes arise the statute creates mechanisms for dispute resolution through inspections by the Department of Agriculture.⁴⁵ The final provisions of the Act make violation of a provision of the Act a misdemeanor.⁴⁶

2. PACA

Codified in 1930, PACA provides a licensing system used for the interstate shipping of perishable agricultural commodities.⁴⁷ Predating Georgia's Act, PACA provides penalties for violations of its provisions.⁴⁸ The United States Secretary of Agriculture is responsible for authorizing, monitoring, revoking, or suspending licenses for brokers and dealers that meet (or fail to meet) the requirements for licensure.⁴⁹ The United States Court of Appeals for the Second Circuit, in In re Kornblum & Co.,⁵⁰addressed the purpose of PACA. Congress enacted PACA to promote financial responsibility as well as to prevent unfair business practices in

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the interstate business of shipping perishable agricultural commodities.⁵¹ Congress has amended PACA and provided for more protection to produce suppliers.⁵²

3. Similarities Between Georgia's Act and PACA

Enacted around the same time period, both Georgia's Act and PACA attack the problem of dealers seizing unfair opportunities to take advantage of growers of agricultural products.⁵³ Though differences exist between the two acts, the similarities in their structure, purpose, and definitional sections led the Georgia Supreme Court to examine the federal law to interpret the state law in this case.⁵⁴

B. Certified Question Two: Regulatory versus Revenue

To answer the second certified question, the court applied the rule outlined in Paulsen St. Investors v. Ebco Gen. Agencies⁵⁵ to the Act.⁵⁶ For over one hundred years, Georgia's appellate courts have articulated and built upon previous rules pertaining to the purpose of licenses to set forth the rule in Paulsen St. Investors.⁵⁷ The rule states:

[W]here a statute provides that persons proposing to engage in a certain business shall procure a license before being authorized to do so, and where it appears from the terms of the statute that it was enacted not merely as a revenue measure but was intended as a regulation of such business in the interest of the public, contracts made in violation of such statute are void and unenforceable.⁵⁸

This rule applies to statutes across different industries that share the common purpose of regulating in the interest of the public.⁵⁹

1. Earliest Definitions of the Test for License Purpose

The Georgia Supreme Court has issued multiple decisions since the late 1800s exploring licensing statutes to determine if they are merely revenue-based or are regulatory in nature. Decided in 1875, Taliaferro v.

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Moffett⁶⁰ was the first case in a...