850 F.3d 446
9th Cir.2017Background
- Produce growers sold goods on credit to distributor Tanimura, creating a PACA trust in favor of the growers for the commodities and any receivables/proceeds.
- Tanimura entered a written “Factoring and Security Agreement” with Agricap, described variously as a sale of accounts and as a credit/factoring facility; agreement included reserve accounts, repurchase obligations, UCC filings, subordination, and recourse features.
- Tanimura later became insolvent and growers were not paid in full; growers sued Agricap claiming the receivables remained PACA trust assets and Agricap was liable for the trust breach.
- Growers argued a court must first determine whether a true sale occurred (transfer-of-risk test); if not, the transaction is a secured loan and trust assets remain with growers having priority.
- Agricap relied on Ninth Circuit precedent (Boulder Fruit) that permits commercially reasonable factoring sales to remove receivables from the PACA trust and moved for summary judgment.
- The district court granted summary judgment for Agricap; the Ninth Circuit panel affirmed, holding Boulder Fruit controls and the agreement was commercially reasonable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a court must apply a threshold transfer-of-risk (true-sale) test before reviewing commercial reasonableness of a factoring agreement | Growers: courts must first determine whether the factoring transaction effected a true sale (i.e., transferred primary risk of nonpayment); if not, receivables remain PACA trust assets | Agricap: Ninth Circuit precedent (Boulder Fruit) allows direct review of commercial reasonableness; a commercially reasonable factoring sale removes receivables from the trust | Held: Boulder Fruit controls; Ninth Circuit panel declined to adopt separate transfer-of-risk threshold and reviewed commercial reasonableness instead |
| Whether the Factoring Agreement here was commercially reasonable (and thus not a breach of PACA trust) | Growers: agreement’s recourse, repurchase provisions, reserves and other lender-like features indicate it was effectively a secured loan | Agricap: agreement was commercially reasonable (paid ~80% upfront, and ultimately >90% of face value); similar or more protective than Boulder Fruit | Held: Agreement was commercially reasonable; summary judgment for Agricap affirmed |
| Whether Boulder Fruit implicitly rejected the transfer-of-risk test | Growers: Boulder Fruit didn’t address transfer-of-risk, so Ninth Circuit should not be bound | Agricap: Boulder Fruit addressed the issue and did not apply transfer-of-risk despite briefs raising it | Held: Panel concluded Boulder Fruit necessarily and implicitly rejected transfer-of-risk because that case involved virtually no risk transfer; thus Boulder Fruit is binding precedent |
| Effect of recourse and security-language (UCC filings, guarantees) on PACA beneficiary priority | Growers: recourse and security indicia mean accounts remained trust property and growers’ claims are superior | Agricap: labels and payments show a sale; commercial reasonableness governs and was met | Held: Under Ninth Circuit precedent, substance assessed through commercial-reasonableness inquiry; here the agreement met that standard despite recourse features |
Key Cases Cited
- Boulder Fruit Express & Heger Organic Farm Sales v. Transp. Factoring, Inc., 251 F.3d 1268 (9th Cir. 2001) (commercially reasonable factoring sale can convert PACA trust receivables into non‑trust cash)
- Nickey Gregory Co., LLC v. AgriCap, LLC, 597 F.3d 591 (4th Cir. 2010) (adopts a transfer‑of‑risk true‑sale test to distinguish sales from secured lending)
- Reaves Brokerage Co., Inc. v. Sunbelt Fruit & Vegetable Co., Inc., 336 F.3d 410 (5th Cir. 2003) (examines substance over labels and applies risk‑transfer analysis to characterize factoring arrangements)
- Endico Potatoes, Inc. v. CIT Group/Factoring, Inc., 67 F.3d 1063 (2d Cir. 1995) (articulates factors for determining whether accounts were sold or held as collateral; centers inquiry on transfer of primary risk)
- Sunkist Growers, Inc. v. Fisher, 104 F.3d 280 (9th Cir. 1997) (PACA trust assets are excluded from bankruptcy estate under general trust principles)