A factoring agreement under which an agricultural products distributor sells its accounts receivable to a factor at a discount is not a breach of the distributor’s fiduciary duties to growers, so the factor is not liable for the distributor’s debts to growers. Under the Perishable Agricultural Commodities Act (PACA), a distributor of agricultural products that buys on credit from producers holds the products and their proceeds in trust for the growers. If the distributor transfers trust assets in breach of trust, the transferees can be held liable to the growers, if the distributor is unable to pay them what it owes. This decision follows Boulder Fruit Express & Heger Organic Farm Sales v. Transportation Factoring, Inc. (9th Cir. 2001) 251 F.3d 1268 in holding that a factoring agreement under which the distributor sells its accounts receivable from its customers to the factor at a discount in return for financing of the sales is not a breach of the PACA trust, and so the factor’s security interest in the accounts receivable takes priority over the growers’ claims. This is true, the decision holds, even if the factoring agreement does not transfer to the factor the risk of non-payment by the distributor’s customers.
Ninth Circuit Court of Appeals (per curiam); February 27, 2017; 2017 WL 744052