S & H Packing & Sales Co. v. Tanimura Distributing, Inc.

Dissent by Judge Ikuta

OPINION

Appellant produce growers (“Growers”) 1 sold their perishable agricultural products on credit to a distributor, Tanimura Distributing, Inc. (“Tanimura”). Under the Perishable Agricultural Commodities Act (“PACA”), 7 U.S.C. §§ 499a-499s, this arrangement made Tanimura a trustee over a PACA trust holding the perishable products and any resulting proceeds for Growers as PACA-trust beneficiaries. Tanimura sold the agricultural products on credit to third parties. It then transferred the resulting accounts receivable to Appellee AgriCap Financial (“AgriCap”) through a-transaction AgriCap describes as a “Factoring Agreement” or sale of accounts.

Although described as a sale of accounts, the Factoring Agreement involved some hallmarks of a secured lending arrangement: AgriCap referred to itself as “Lender,” and the written agreement was entitled “AgriCap Financial Corporation Factoring and Security Agreement.” Further, AgriCap was granted security interests in accounts receivable and all other asset classes except inventory; UCC financing statements were filed; other debts were subordinated; and there was a measure of recourse for AgriCap against…

with whom HURWITZ and FRIEDLAND, Circuit Judges, join, dissenting:

Congress enacted the Perishable Agricultural Commodities Act (PACA) trust, 7 U.S.C. § 499e(c), to solve a simple problem. Most produce growers sell their products to distributors on credit. If the distributor goes bankrupt, the growers are mere unsecured creditors and may only get cents on the dollar. The distributor’s secured creditors, by contrast, get first crack at the distributor’s assets. To address this problem, PACA made the distributor a trustee, the growers beneficiaries, and the growers’ produce (and any resulting proceeds) trust assets. Congress thus ensured that in bankruptcy, the proceeds from the sale of the growers’ produce would be available to pay off the growers.

The appeal before us today poses a related scenario: If a PACA trustee borrows money from a lender (using the trust assets as collateral) in order to pay the growers, but the money runs out before all the growers are paid, does the lender have an obligation to make the unpaid growers whole? The majority says yes: if the trustee fails to reimburse the growers, the lender is on the hook. The majority posits that the growers have a…