S & H Packing & Sales Co. v. Tanimura Distributing, Inc.

Concurrence by Judge MELLOY

*449OPINION

PER CURIAM:

Appellants are produce growers (“Growers”) who sold their perishable agricultural products on credit to a distributor, Tani-mura Distributing, Inc. (“Tanimura”). Pursuant to the Perishable Agricultural Commodities Act (“PACA”), 7 U.S.C. §§ 499a-499t, this arrangement made Tanimura a trustee over a PACA trust holding the perishable products and any resulting proceeds for the Growers as PACA-trust beneficiaries. Tanimura then sold the products on credit to third parties and transferred its own resulting accounts receivable to Appellee Agricap Financial (“Agricap”) through a transaction Agricap describes as a “Factoring Agreement” or sale of accounts.1 Although described as a sale of accounts, Agricap initially referred to the arrangement as a “credit facility,” and the written agreement was entitled “Agricap Financial Corporation Factoring and Security Agreement.” Further, the Factoring Agreement involved many hallmarks of a secured lending arrangement, including: security interests in accounts and all other asset classes except inventory; UCC financing statements; subordination of other debts; and substantial recourse for Agricap against Tanimura in the event Agricap was unable to collect from Tanimura’s customers (for example, Agricap was entitled to force Tanimura to “repurchase” accounts that remained unpaid after 90 days, and Agricap could enforce this right by withholding payments from Tanimura).

Tanimura’s business later failed, and Growers did not receive payment in full from Tanimura for their produce. Growers sued Agricap alleging: (1) the Factoring Agreement was merely a secured lending arrangement structured to look like a sale but transferring no substantial risk of nonpayment on the accounts; (2) the accounts receivable and proceeds remained trust property under PACA; (3) because the accounts receivable remained trust property, Tanimura breached the PACA trust and Agricap was complicit in the breach; and (4) PACA-trust beneficiaries such as Growers held an interest superior to Agri-cap, and Agricap was liable to Growers.

Agricap moved for summary judgment arguing that, pursuant to Boulder Fruit Express & Heger Organic Farm Sales v. Transportation Factoring, Inc., 251 F.3d 1268 (9th Cir. 2001), a commercially reasonable factoring agreement removes accounts receivable from the PACA trust without a trustee’s breach of trust, thus defeating the Growers’s claims. Growers acknowledged that a PACA trustee generally may sell trust assets on commercially reasonable terms without breaching trust duties. Growers argued, however, that pursuant to Nickey Gregory Co., LLC v. AgriCap, LLC, 597 F.3d 591, 598-99 (4th Cir. 2010), Reaves Brokerage Co., Inc. v. Sunbelt Fruit & Vegetable Co., Inc., 336 F.3d 410, 414 (5th Cir. 2003), and Endico Potatoes, Inc. v. CIT Group/Factoring, Inc., 67 F.3d 1063, 1067-69 (2d Cir. 1995), a court should not review the commercial reasonableness of a factoring agreement unless the court first determines a true sale actually occurred.2 According to Grow*450ers, a true sale occurs when a PACA trustee transfers not merely the right to collect the underlying accounts, but also the risk of nonpayment on those accounts.3

Relying on Boulder Fruit and describing the cited cases as a circuit split, the district court granted summary judgment. The district court noted the Ninth Circuit in Boulder Fruit expressly addressed the commercial reasonableness of a factoring agreement but implicitly rejected a separate, transfer-of-risk test. Further, the court noted the factoring agreement in Boulder Fruit transferred even less risk than the Factoring Agreement in the present case — in Boulder Fruit, the factoring agent enjoyed unrestricted discretion to force the distributor to repurchase accounts. The court therefore held that, even-if Boulder Fruit could accommodate the transfer-of-risk test, the facts of Boulder Fruit controlled and precluded relief for Growers. Finally, the court concluded that the Factoring Agreement was commercially reasonable because Agricap paid to Tanimura 80% of the face value of the accounts as an up-front payment and ultimately paid to Tanimura an even greater percentage of the face value of the transferred accounts.

On appeal, Growers argue that we are not bound by Bmlder Fruit because the absence of discussion of the transfer-of-risk test in Boulder Fruit leaves open the question of whether that test should apply in the Ninth Circuit. Agricap counters that Bmlder Fruit settled the issue because the PACA-trust beneficiaries in Bmlder Fruit asked the Court to apply the transfer-of-risk test; the parties in that .case briefed the issue; the issue was squarely before the Court; yet, the Court did not apply the test.

Applying de novo review, Arizona v. Tohono O’odham, Nation, 818 F.3d 549, 555 (9th Cir. 2016), we agree with the district court’s conclusion that Boulder Fruit controls the outcome in the present case. See United States v. Lucas, 963 F.2d 243, 247 (9th Cir. 1992) (noting that subsequent panels are bound by prior panel decisions and only the en banc court may overrule panel precedent). In some cases, an earlier panel’s election not to discuss an argument may prevent future panels from concluding the earlier panel implicitly accepted or rejected an argument. After all, “under the doctrine of stare decisis a case is important only for what it decides — for the ‘what,’ not for the ‘why,’ and not for' the ‘how.’ ” In re Osborne, 76 F.3d 306, 309 (9th Cir. 1996) (“[T]he doctrine of stare decisis concerns the holdings of previous cases, not the rationales[.]”). In Boulder Fruit, however, implicit rejection of the transfer-of-risk test was necessary to the holding. We reach this conclusion because the factoring agreement in Boulder Fruit involved virtually no transfer of risk from the distributor to the factoring agent.4 Had *451the Boulder Fruit court not implicitly rejected the transfer-of-risk test, the holding of the case necessarily would have been different.

Further, because the Factoring Agreement in the present case transferred a small degree of risk of non-payment, at least when compared to the agreement at issue in Boulder Fruit, we agree that Boulder Fruit would preclude relief to the Growers even if it were possible for our panel to adopt the transfer-of-risk test.

Finally, Growers do not seriously contend on appeal that the Factoring Agreement was otherwise commercially unreasonable. The Factoring Agreement in the present case is, in many material respects, similar to the agreement in Boulder Fruit. And, Agricap paid to Tanimura under the current Factoring Agreement well in excess of what the Ninth Circuit previously described as a reasonable factoring rate. Boulder Fruit, 251 F.3d at 1272 (“In any case, a factoring discount of 20% was never shown to be commercially unreasonable.”).

We therefore affirm the judgment of the district court.

AFFIRMED.

. Factoring is "the commercial practice of converting receivables into cash by selling them at a discount.” Boulder Fruit Express & Heger Organic Farm Sales v. Transp. Factoring, Inc., 251 F.3d 1268, 1271 (9th Cir. 2001) (citing Black's Law Dictionary (7th ed, 1999)).

. See, e.g., Reaves Brokerage, 336 F.3d at 414 ("Characterization of the agreement at issue turns on the substance of the relationship ..., not simply the label attached to the transaction. ... Application of the Second Circuit’s risk-transfer analysis and our own independent examination of the substance of the parties' agreement leads us to conclude that the *450relationship ... was that of a secured lender and debtor, not a seller and buyer.” (internal citations and quotation marks omitted)).

. The Second Circuit described the transfer-of-risk test as follows:

Where the lender has purchased the accounts receivable, the borrower's debt is extinguished and the lender's risk with regard to the performance of the accounts is direct, that is, the lender and not the borrower bears the risk of non-performance by the account debtor. If the lender holds only a security interest, however, the lender’s risk is derivative or secondary, that is, the borrower remains liable for the debt and bears the risk of non-payment by the account debtor, while the lender only bears the risk that the account debtor's non-payment will leave the borrower unable to satisfy the loan.

Endico Potatoes, 67 F.3d at 1069.

. The factoring agreement from Boulder Fruit is part of the current summary judgment record, and the briefs in that case are a matter of *451public record. See, e.g., Brief of Appellants, Boulder Fruit, 251 F.3d 1268 (9th Cir. 2001) (No. 99-56770), 2000 WL 33989585. To the extent such notice may be necessary, we take judicial notice of the Boulder Fruit parties’ positions as set forth in their briefs.