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.).
The Farm Belt is hurtling toward a milestone: Soon there will be fewer than two million farms in America for the first time since pioneers moved westward after the Louisiana Purchase, according to an analysis in the Wall Street Journal. Across the heartland, a multiyear slump in prices for corn, wheat and other farm commodities brought on by a glut of grain world-wide is pushing many farmers further into debt. Some are shutting down, raising concerns that the next few years could bring the biggest wave of farm closures since the 1980s. The U.S. share of the global grain market is less than half what it was in the 1970s. American farmers’ incomes will drop 9 percent in 2017, the Agriculture Department estimates, extending the steepest slide since the Great Depression into a fourth year. Farming has always been a boom-and-bust enterprise. Today, the swings are sharper and less predictable now that the farm economy has become more international, with more countries growing food for export as well as for their own populations. American farmers’ share of the global grain trade has fallen from 65 percent in the mid-1970s to 30 percent today, giving them less sway over prices. More producers and more buyers around the world also mean more potential disruptions from bad weather, famine or political crisis.
