The Ninth Circuit granted rehearing en banc on a case that could eliminate a circuit split on a major issue involving the federal Perishable Agricultural Commodities Act, or PACA (7 U.S.C. § 499a et seq.).
The issue is important in California, a major agricultural producer. In Boulder Fruit Express & Heger Organic Farm Sales v. Transportation Factoring, Inc., 251 F.3d 1268 (9th Cir. 2001), the Ninth Circuit created a loophole in 2001 where a wholesaler’s lender could easily preclude farmers from being protected by PACA. Bound by Boulder, a panel ruled against the farmer in a per curiam decision in February. S&H Packing & Sales Co. v. Tanimura Distributing Inc., 850 F.3d 446 (9th Cir. Feb. 27, 2017).
However, two judges on the panel wrote a 19-page concurrence arguing that Boulder Fruit was “wrongly decided” and urging the circuit to sit en banc to bring “the Ninth Circuit into line with the other circuits that have considered the issue.” The Ninth Circuit granted rehearing en banc on June 23 and tentatively scheduled oral argument during the week of Sept. 18.
PACA creates a statutory trust protecting growers from not being paid for their fresh produce and gives them protection ahead of accounts receivable financing. However, farmers do not have recourse under PACA against purchasers of the receivables. Before putting farmers behind purchasers of receivables, the Second, Fourth and Fifth Circuits require the court first to decide if a true sale actually occurred and, second, to examine whether the sale was commercially reasonable.
In Boulder Fruit, the Ninth Circuit split with its sister circuits by holding, in the case of documentation labeled as a sale of accounts receivable, that the court need only decide whether the transaction was commercially reasonable before cutting off PACA protection. There has been no threshold test in the Ninth Circuit to determine whether the transaction qualifies as a true sale.
S&H Packing, the case to be reheard en banc, appears to be a test case involving a transaction labeled as a sale of receivables that might not have been a true sale because the purchaser had the right to force the seller to repurchase accounts not paid within 90 days.
To read ABI’s discussion of the per curiam opinion in February, click here.
The case is S&H Packing & Sales Co. v. Tanimura Distributing Inc., 14-56059 (9th Cir.).