## Facts

- Multiple produce growers sold perishable agricultural commodities to a produce distributor, Certified Organics, on credit from April 1996 to April 1997.
- Certified resold the produce to its customers on credit, generating accounts receivable.
- While the growers remained unpaid, Certified sold its accounts receivable to Transportation Factoring, Inc. (Transfac) under a factoring agreement.
- The receivables had a face value of about $4.7 million; Transfac paid Certified about $3.297 million (approximately 80%).
- Transfac ultimately collected about $3.278 million on the receivables, less than it paid to Certified.
- After Certified defaulted on payments to the growers, the growers sued Certified, Transfac, and Capitol Resource Funding, Inc. (which referred Certified to Transfac), alleging that the receivables were PACA trust assets and were transferred in breach of the PACA trust.

## Issues

1. Whether transferring PACA trust accounts receivable to a factoring company for less than face value can constitute dissipation or breach of the PACA trust, even if the factor arguably paid the receivables’ “actual” value.
2. Whether a transferee of PACA trust assets can retain the assets or proceeds only by proving bona fide purchaser status (for value and without notice of breach).

## Decision

- The Ninth Circuit reversed the district court’s summary judgment for Transfac and Capitol and remanded.
- The court held the district court used an incorrect legal standard by treating Transfac’s apparent economic loss (paying more than it collected) as dispositive of whether a PACA trust breach occurred.
- The court directed that the proper analysis considers whether PACA trust assets were transferred in breach of trust and, if so, whether the transferee can avoid liability by establishing bona fide purchaser protection.

## Legal Principles

- PACA creates a statutory trust for the benefit of unpaid produce sellers that includes produce and its proceeds, including accounts receivable generated by resale.
- A transaction involving PACA trust assets is not insulated from challenge merely because the transferee arguably paid “fair value” or later collected less than it paid.
- A transferee who receives PACA trust assets in breach of trust may be required to return the assets (or traceable proceeds) unless the transferee proves it took for value and without notice of the breach (bona fide purchaser doctrine).
- Summary judgment is improper where the court applies an incorrect legal test to determine whether a PACA trust breach and transferee liability may exist.

## Conclusion

The Ninth Circuit required a trust-law-based PACA analysis rather than a simple “fair value” comparison, holding that factoring PACA receivables may involve a breach of the PACA trust and that the factor’s protection depends on establishing bona fide purchaser status, warranting reversal and remand.


Boulder Fruit Express & Heger Organic Farm Sales v. Transportation Factoring, Inc., 251 F.3d 1268 (9th Cir. 2001)