Produce Pay, Inc. v. Izguerra Produce, Inc., 39 F.4th 1158

Background

Produce Pay operates an online wholesale produce platform, buys produce, and provides financing to growers; it holds a PACA license.
In Jan–Apr 2019 Produce Pay entered a Distribution Agreement with Izguerra: growers shipped avocados directly to Izguerra, Produce Pay retained title and invoiced Izguerra; Izguerra was to resell on consignment and remit proceeds less commission and permitted deductions.
Produce Pay invoiced Izguerra $70,560 after Izguerra confirmed receipt; Izguerra remitted only $15,000, leaving $63,786.56 outstanding. Produce Pay’s invoice stated the sale was “subject to the [PACA] statutory trust.”
District court dismissed Produce Pay’s PACA claims with prejudice, applying this court’s transfer-of-risk test (Tanimura) to recharacterize the transaction as a secured loan rather than a sale; it declined supplemental jurisdiction over state-law claims.
Ninth Circuit reversed and remanded: it held Produce Pay plausibly alleged it was an unpaid seller/supplier under PACA and that the Tanimura transfer-of-risk inquiry is fact-intensive and premature on a Rule 12(b)(6) motion; the panel reserved ruling on the merits and on leave to amend.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether Produce Pay is an “unpaid seller or supplier” under PACA	Produce Pay alleges it bought the avocados, retained title, invoiced Izguerra, labeled invoices with PACA trust language, and consigned goods for resale	Izguerra says Produce Pay functioned as a financier/creditor, shifted risk to Izguerra, and therefore was not a seller entitled to PACA protection	Ninth Circuit: Produce Pay plausibly alleged seller/supplier status; cannot be dismissed as a matter of law on pleadings alone
Whether Tanimura’s transfer-of-risk test should be applied on a motion to dismiss	Test is fact-intensive, suited to summary judgment or post-discovery; pleadings must be construed in plaintiff’s favor	Tanimura applies and shows the transaction was effectively a secured loan warranting dismissal	Court: transfer-of-risk is fact- and evidence-dependent; inappropriate to resolve conclusively at pleading stage here
Whether exhibits attached to the complaint defeat Produce Pay’s pleaded PACA claim	Pleadings and incorporated exhibits must be construed holistically in plaintiff’s favor; allegations are sufficient to state a plausible claim	Exhibits and contract terms show risk-shifting and financing features that contradict the complaint and support dismissal	Court: cannot accept documents as dispositive when they do not uniformly contradict well-pled allegations; factual issues remain for later stages
Dismissal with prejudice / leave to amend	Produce Pay argued dismissal with prejudice was improper given liberal amendment policy	District court dismissed with prejudice	Ninth Circuit did not decide whether denial of leave to amend was proper; remanded for further proceedings

Key Cases Cited

S & H Packing & Sales Co. v. Tanimura Distrib., Inc., 883 F.3d 797 (9th Cir. 2018) (adopted transfer-of-risk approach to distinguish true sales from secured loans under PACA)
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must state a plausible claim to survive dismissal)
Ashcroft v. Iqbal, 556 U.S. 662 (2009) (courts accept well-pleaded factual allegations and disregard legal conclusions)
Khoja v. Orexigen Therapeutics, Inc., 899 F.3d 988 (9th Cir. 2018) (limits and guidance on considering documents incorporated into the complaint on a motion to dismiss)
Gonzalez v. Planned Parenthood of Los Angeles, 759 F.3d 1112 (9th Cir. 2014) (court need not accept allegations that contradict matters subject to judicial notice or exhibits)
Endico Potatoes, Inc. v. CIT Group/Factoring, Inc., 67 F.3d 1063 (2d Cir. 1995) (discusses lender priority vs. growers and relevance to PACA trust issues)
Reaves Brokerage Co. v. Sunbelt Fruit & Vegetable Co., 336 F.3d 410 (5th Cir. 2003) (substance-over-form approach to determine parties’ roles in produce transactions)