## Facts

- Nickey Gregory Company, LLC and Poppell’s Produce, Inc. sold perishable agricultural commodities to Robison Farms, LLC on short-term credit while preserving their rights as PACA trust beneficiaries.
- Robison Farms failed to pay for produce totaling $106,696 and later entered bankruptcy.
- Robison Farms obtained working-capital financing from AgriCap, LLC involving Robison Farms’ accounts receivable and their proceeds.
- AgriCap advanced funds and collected Robison Farms’ receivables, retaining collections to reduce Robison Farms’ obligations to AgriCap.
- The produce sellers contended the receivables and proceeds in AgriCap’s possession were PACA trust assets subject to their superior trust claims.
- AgriCap maintained the arrangement was a true sale of receivables (factoring) and, alternatively, that it took any trust assets as a bona fide purchaser for value.

## Issues

1. Whether the AgriCap–Robison Farms transaction was a true sale of accounts receivable or a secured loan, affecting whether receivables remained PACA trust assets.
2. Whether PACA trust protections extend to accounts receivable and proceeds held by a third-party financier, giving unpaid sellers priority over the financier.
3. Whether AgriCap could avoid disgorgement by asserting a bona fide purchaser for value defense.
4. Whether recovery should be limited to a reduced amount or should include the full unpaid balances and contractually authorized attorneys’ fees.

## Decision

- The court affirmed the determination that the parties’ arrangement functioned as a secured lending relationship rather than a true factoring sale.
- The court affirmed that the accounts receivable and proceeds held by AgriCap were PACA trust assets subject to the unpaid sellers’ superior claims.
- The court affirmed rejection of AgriCap’s bona fide purchaser defense on these facts.
- The court vacated the damages award and remanded with instructions to award the sellers the full unpaid balances, including Nickey Gregory’s reasonable attorneys’ fees authorized by contract.

## Legal Principles

- PACA creates a nonsegregated, floating trust for unpaid produce sellers covering commodities, inventories derived from them, and receivables or proceeds from their sale.
- Courts look to economic substance, not labels, to decide whether a receivables-based transaction is a sale or a secured loan for PACA trust analysis.
- Receivables and proceeds derived from produce sales remain PACA trust assets and must be applied to unpaid sellers before payment to secured creditors.
- A third party that receives or retains PACA trust assets may be required to disgorge trust property; a bona fide purchaser defense is not readily available where it would defeat PACA’s protection of unpaid sellers.
- “Sums owing in connection with” produce transactions can include contractually authorized attorneys’ fees, making such fees recoverable as part of the PACA trust claim.

## Conclusion

The Fourth Circuit held that a receivables-financing arrangement labeled as factoring was, in substance, a secured loan, leaving produce-derived receivables within the PACA trust; it required the financier to restore trust assets sufficient to pay the sellers’ full unpaid balances, including contract-based attorneys’ fees.


Nickey Gregory Co., LLC v. AgriCap, LLC, 597 F.3d 591 (4th Cir. 2010)