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

Concurrence by Judge MELLOY

*449 OPINION

Appellants are produce growers (“Growers”) who sold their perishable agricultural products on credit to a distributor, Tani-mura Distributing, Inc. (“Tanimura”). Pursuant to the Perishable Agricultural Commodities Act (“PACA”), 7 U.S.C. §§ 499a-499t, this arrangement made Tanimura a trustee over a PACA 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 Appellee Agricap Financial (“Agricap”) through a transaction Agricap describes as a “Factoring Agreement” or sale of accounts. 1 Although described as a sale of accounts, Agricap initially referred to the arrangement as a “credit facility,” and the written agreement was entitled “Agricap Financial Corporation Factoring and Security Agreement.” Further, the Factoring Agreement involved many hallmarks of a secured lending arrangement, including: security interests in accounts and all other asset classes except inventory; UCC financing statements; subordination of other debts; and substantial recourse for Agricap against…

with whom GOULD, Circuit Judge, joins, concurring:

We concur. We write further, however, because we believe Boulder Fruit was wrongly decided and the Ninth Circuit, sitting en banc, should eliminate this circuit split, speak expressly to this issue, and join the Second, Fourth, and Fifth Circuits by adopting a separate, threshold, transfer-of-risk test.

Congress intended PACA to prevent secured lenders from defeating the rights of PACA-trust beneficiaries. The congressional focus upon the relative rights of these two groups is unmistakable. As such, before assessing the commercial reasonableness of a factoring agreement, it is first necessary to examine the substance of a factoring agreement to ensure a true sale has occurred. In the absence of a true sale, superficial indicators and labels surrounding a factoring agreement should be of no consequence. The substance of the transaction matters. If the substance of a transaction reveals a secured lending arrangement rather than a true sale, the accounts receivable remain trust assets. Thus, unpaid trust beneficiaries hold an interest in accounts receivable and their proceeds superior to all unsecured and secured creditors such…