G.W. Palmer & Co. v. Agricap Financial, No. 14-56059 (9th Cir. 2017)
Annotate this CaseGrowers sold their perishable agricultural products on credit to a distributor, Tanimura, which made Tanimura trustee over a Perishable Agricultural Commodities Act (PACA), 7 U.S.C. 499a-499t, trust holding the perishable products and any resulting proceeds for the Growers as PACA-trust beneficiaries. Tanimura then sold the products on credit to third parties and transferred its own resulting accounts receivable to Agricap through a Factoring Agreement or sale of accounts. In this suit against Agricap, Growers alleged that the Factoring Agreement was merely a secured lending arrangement structured to look like a sale but transferring no substantial risk of nonpayment on the accounts; the accounts receivable and proceeds remained trust property under PACA; because the accounts receivable remained trust property, Tanimura breached the PACA trust and Agricap was complicit in the breach; and PACA-trust beneficiaries such as Growers held an interest superior to Agricap, and Agricap was liable to Growers. The court agreed with the district court's conclusion that Boulder Fruit Express & Heger Organic Farm Sales v. Transportation Factoring, Inc., controls the outcome of the case. The district court noted that the Ninth Circuit in Boulder Fruit expressly addressed the commercial reasonableness of a factoring agreement but implicitly rejected a separate, transfer-of-risk test. The district court further noted that the factoring agreement in Boulder Fruit transferred even less risk than the Factoring Agreement in the present case. Accordingly, the court affirmed the judgment.
Court Description: Perishable Agricultural Commodities Act. The panel affirmed the district court’s summary judgment in favor of the defendant in an action brought by produce growers under the Perishable Agricultural Commodities Act. The growers sold their perishable agricultural products on credit to a distributor, which made the distributor a trustee over a PACA trust holding the perishable products and any resulting proceeds for the growers as PACA-trust beneficiaries. The distributor sold the products on credit to third parties and, through a transaction described as a “factoring agreement,” transferred its own resulting accounts receivable to defendant Agricap Financial Corp. The distributor’s business later failed, and the growers did not receive payment in full from the distributor for their produce. The growers sued Agricap. The panel affirmed the district court’s holding that, pursuant to Boulder Fruit Express & Heger Organic Farm Sales v. Transp. Factoring, Inc., 251 F.3d 128 (9th Cir. 2001), a commercially reasonable factoring agreement removes accounts receivable from the PACA trust without a trustee’s breach of trust, thus defeating the growers’ claims. The growers argued that a PACA trustee’s true sale of trust assets, which does not breach trust duties, occurs when the trustee transfers not merely the right to collect the underlying accounts, but also the risk of non-payment on those accounts. G.W. PALMER & CO. V. AGRICAP FINANCIAL 5 The panel concluded that Boulder Fruit implicitly rejected the transfer-of-risk test, and this implicit rejection was necessary to its holding. Accordingly, Boulder Fruit controlled the outcome of the growers’ case. Concurring, Judge Melloy, joined by Judge Gould, wrote that Boulder Fruit was wrongly decided and that the Ninth Circuit, sitting en banc, should eliminate a circuit split, speak expressly to this issue, and join the Second, Fourth, and Fifth Circuits by adopting a separate, threshold, transfer-of-risk test.
The court issued a subsequent related opinion or order on June 23, 2017.
The court issued a subsequent related opinion or order on February 22, 2018.
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