                FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT


S & H PACKING & SALES CO., INC.,        No. 14-56059
DBA Season Produce Co., a
California corporation,                    D.C. No.
                          Plaintiff,    2:08-cv-05250-
                                           GW-FFM
                and

G. W. PALMER & CO., INC.; ANDREW
& WILLIAMSON SALES CO., INC.,
DBA Andrew & Williamson Fresh
Produce; EAST COAST BROKERS AND
PACKERS, INC.; GARGIULO, INC.,
               Plaintiffs-Appellants,

                 v.

TANIMURA DISTRIBUTING, INC., a
California corporation,
                        Defendant,

                and

AGRICAP FINANCIAL CORPORATION,
a Delaware corporation,
               Defendant-Appellee.
2     G.W. PALMER & CO. V. AGRICAP FINANCIAL


S & H PACKING & SALES CO., INC.,          No. 14-56078
DBA Season Produce Co., a
California corporation,                      D.C. No.
                          Plaintiff,      2:08-cv-05250-
                                             GW-FFM
                 and

APACHE PRODUCE CO., INC., DBA               OPINION
Plain Jane, an Arizona corporation;
O.P.MURPHY PRODUCE CO., INC.,
DBA Murphy & Sons, a Texas
corporation; OCEANSIDE PRODUCE,
INC., a California corporation;
WILSON PRODUCE, LLC, an Arizona
Limited liability company; FRANK
DONIO, INC.; ABBATE FAMILY FARMS
LIMITED PARTNERSHIP; J.P.M. SALES
CO., INC., an Arizona corporation,
                 Plaintiffs-Appellants,

THOMSON INTERNATIONAL, INC.,
assignee, Tanimura Distributing,
Inc.,
                Creditor-Appellant,

                  v.

TANIMURA DISTRIBUTING, INC.,
                      Defendant,

                 and
        G.W. PALMER & CO. V. AGRICAP FINANCIAL                      3


 AGRICAP FINANCIAL CORPORATION,
 a Delaware corporation,
                Defendant-Appellee.



        Appeal from the United States District Court
           for the Central District of California
         George H. Wu, District Judge, Presiding

    Argued and Submitted En Banc September 20, 2017
                San Francisco, California

                    Filed February 22, 2018

    Before: Sidney R. Thomas, Stephen Reinhardt, M.
 Margaret McKeown, Kim McLane Wardlaw, William A.
Fletcher *, Ronald M. Gould, Consuelo M. Callahan, Sandra
 S. Ikuta, Jacqueline H. Nguyen, Andrew D. Hurwitz and
            Michelle T. Friedland, Circuit Judges.

                    Opinion by Judge Gould;
                     Dissent by Judge Ikuta




    *
      This case was submitted to a panel that included Judge Kozinski,
who recently retired. Following Judge Kozinski’s retirement, Judge W.
Fletcher was drawn by lot to replace him. Ninth Circuit General Order
3.2.h. Judge W. Fletcher has read the briefs and reviewed the record.
4       G.W. PALMER & CO. V. AGRICAP FINANCIAL

                          SUMMARY **


         Perishable Agricultural Commodities Act

    The en banc court vacated the district court’s summary
judgment in favor of defendant AgriCap Financial Corp. in
an action brought by produce growers under the Perishable
Agricultural Commodities Act, and remanded for further
proceedings.

    The growers sold their perishable agricultural products
on credit to Tanimura Distributing, Inc., a distributor, which
made Tanimura a trustee over a PACA trust holding the
perishable products and any resulting proceeds for the
growers as PACA-trust beneficiaries. Tanimura sold the
products on credit to third parties and transferred the
resulting accounts receivable to AgriCap through a
transaction AgriCap described as a “Factoring Agreement”
or sale of accounts. Tanimura’s business later failed, and the
growers did not receive payment in full from Tanimura for
their products.

    The growers sued AgriCap, alleging: (1) that the
Factoring Agreement was merely a secured lending
arrangement structured to look like a sale; (2) that the
accounts receivable and proceeds, therefore, remained trust
property under PACA; (3) that because the accounts
receivable remained trust property, Tanimura breached the
PACA trust and AgriCap was complicit in the breach; and
(4) that under PACA the PACA-trust beneficiaries,

    **
       This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
        G.W. PALMER & CO. V. AGRICAP FINANCIAL                  5

including the growers, held an interest superior to that of any
secured lender. Hence, AgriCap was liable to the growers to
repay the value of the accounts receivable.

    Joining other circuits, the en banc court adopted a
threshold “true sale” test to determine whether assets
transferred in transactions that are labeled “sales” remain
assets of a PACA trust. The en banc court held that a court
must conduct a two-step inquiry when determining whether
the questioned transaction is a sale or creates a security
interest, i.e., a loan. First, a court must apply a threshold true
sale test of which the transfer-of-risk is a key, but not the
sole, factor. If a court concludes that there was a true sale, it
must then determine if the transaction was commercially
reasonable. To the extent that its opinion contradicted
Boulder Fruit Express & Heger Organic Farm Sales v.
Transp. Factoring, Inc., 251 F.3d 1268 (9th Cir. 2001), the
en banc court overruled Boulder Fruit.

    On remand, the district court should determine whether
the transaction at issue was a true sale or a lending
agreement.

    Dissenting, Judge Ikuta, joined by Judges Hurwitz and
Friedland, wrote that the majority’s conclusion—that if a
PACA trustee borrows money from a lender in order to pay
the growers, but the money runs out before all the growers
are paid, then the lender has an obligation to make the unpaid
growers whole—is unmoored from both the text of PACA
and settled principles of trust law.
6      G.W. PALMER & CO. V. AGRICAP FINANCIAL

                       COUNSEL

Louis W. Diess III (argued) and Mary Jean Fassett,
McCarron & Diess, Washington, D.C., for Plaintiffs-
Appellants G.W. Palmer & Co., Inc.; Gargiulo, Inc.; Andrew
& Williamson Sales Co., Inc.; and East Coast Brokers &
Packers, Inc.

Robert Porter Lewis, Jr., Law Office of Robert P. Lewis Jr.,
South Pasadena, California; Bradley L. Cornell, Cornell
Law Firm, Pasadena, California, for Plaintiffs-Appellants
Apache Produce Co., Inc; O.P. Murphy Produce Co., Inc.;
Oceanside Produce, Inc.; Wilson Produce, LLC; Frank
Donio, Inc.; Abbate Family Farms Limited Partnership; JPM
Sales Co., Inc.; and Thomson International, Inc.

Cristoph Carl Heisenberg (argued), Hinckley & Heisenberg
LLP, New York, New York, for Defendant-Appellee
AgriCap Financial Corporation.
        G.W. PALMER & CO. V. AGRICAP FINANCIAL                       7

                            OPINION

GOULD, Circuit Judge:

    Appellant produce growers (“Growers”) 1 sold their
perishable agricultural products on credit to a distributor,
Tanimura Distributing, Inc. (“Tanimura”). Under the
Perishable Agricultural Commodities Act (“PACA”),
7 U.S.C. §§ 499a–499s, this arrangement made Tanimura a
trustee over a PACA trust holding the perishable products
and any resulting proceeds for Growers as PACA-trust
beneficiaries. Tanimura sold the agricultural products on
credit to third parties. It then transferred the resulting
accounts receivable to Appellee AgriCap Financial
(“AgriCap”) through a transaction AgriCap describes as a
“Factoring Agreement” or sale of accounts. 2

    Although described as a sale of accounts, the Factoring
Agreement involved some hallmarks of a secured lending
arrangement: AgriCap referred to itself as “Lender,” and the
written agreement was entitled “AgriCap Financial
Corporation Factoring and Security Agreement.” Further,
AgriCap was granted security interests in accounts
receivable and all other asset classes except inventory; UCC
financing statements were filed; other debts were
subordinated; and there was a measure of recourse for

    1
       Growers are tomato suppliers whose various lawsuits against
Tanimura Distributing, Inc. were consolidated into one case before the
district court.

    2
       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)).
8       G.W. PALMER & CO. V. AGRICAP FINANCIAL

AgriCap against Tanimura if AgriCap could not 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.

    The central dispute in this case developed after
Tanimura’s business failed, and Growers did not receive full
payment from Tanimura for their produce. 3 Growers sued
AgriCap alleging: (1) that the Factoring Agreement was
merely a secured lending arrangement structured to look like
a sale; (2) that the accounts receivable and proceeds,
therefore, remained trust property under PACA; (3) that
because the accounts receivable remained trust property,
Tanimura breached the PACA trust and AgriCap was
complicit in the breach; and (4) that under PACA the PACA-
trust beneficiaries, including Growers, held an interest
superior to that of any secured lender. Hence, AgriCap was
liable to Growers to repay the value of the accounts
receivable.

    AgriCap moved for summary judgment arguing that,
under Boulder Fruit Express & Heger Organic Farm Sales
v. Transportation Factoring, Inc., 251 F.3d 1268 (9th Cir.
2001), a trustee is allowed to remove assets from the trust in
any commercially reasonable way without breaching the
trust. And, it argued, the factoring agreement was
commercially reasonable, like the one upheld in Boulder
Fruit. Growers acknowledged that a PACA trustee
generally may sell PACA-trust assets on commercially
reasonable terms without breaching trust duties. They

    3
      Tanimura owed Growers more than $800,000 when Tanimura
ceased operation.
           G.W. PALMER & CO. V. AGRICAP FINANCIAL                        9

argued, however, that under precedents from the Second,
Fourth and Fifth Circuits, 4 a court should not review the
commercial reasonableness of a factoring agreement unless
and until the court first determines that a true sale actually
occurred. 5 According to Growers, a true sale only occurs
when a PACA trustee transfers not only the right to collect
the underlying accounts, but also the risk of non-payment on
those accounts. 6



    4
       See Nickey Gregory Co. v. Agricap, LLC, 597 F.3d 591, 598 (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).
    5
       See, e.g., Reaves Brokerage, 336 F.3d at 414 (holding that the
“[c]haracterization of the agreement at issue turns on the substance of
the relationship” and “not simply the label attached to the transaction,”
and concluding that the relationship “was that of a secured lender and
debtor, not a seller and buyer” (internal quotation marks and citations
omitted)).
    6
        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.
10      G.W. PALMER & CO. V. AGRICAP FINANCIAL

    The district court described the cited cases as a circuit
split and granted summary judgment in favor of AgriCap
relying on Boulder Fruit. The district court reasoned that the
Ninth Circuit in Boulder Fruit expressly addressed the
commercial reasonableness of a factoring agreement but
implicitly rejected a separate, transfer-of-risk test. The
district court further reasoned that the factoring agreement
in Boulder Fruit transferred even less risk than did the
Factoring Agreement here—in Boulder Fruit, the factoring
agent enjoyed unrestricted discretion to force the distributor
to repurchase accounts. The district court concluded that,
even if Boulder Fruit could accommodate the transfer-of-
risk test, the facts of Boulder Fruit controlled and precluded
relief for Growers. The district court finally concluded that
the Factoring Agreement was commercially reasonable
because AgriCap paid Tanimura 80% of the face value of the
accounts, an amount that has never been found to be
unreasonable, as an up-front payment and AgriCap
ultimately paid Tanimura an even greater percentage of the
face value of the transferred accounts.

    On appeal, Growers argued to the three-judge panel that
we are not bound by Boulder Fruit because Boulder Fruit
did not discuss the transfer-of-risk test, leaving open the
question of whether that test should apply in the Ninth
Circuit. AgriCap countered by contrast with its argument
that Boulder Fruit settled the issue because the PACA-trust
beneficiaries in Boulder 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; and yet, the Court
did not apply the test.

    The three-judge panel agreed with the district court’s
conclusion that Boulder Fruit controlled the outcome in this
case. S & H Packing & Sales Co., Inc. v. Tanimura Distrib.,
        G.W. PALMER & CO. V. AGRICAP FINANCIAL                    11

Inc., 850 F.3d 446, 450–51 (9th Cir.), reh’g en banc granted,
868 F.3d 1047 (9th Cir. 2017); see Arizona v. Tohono
O’odham Nation, 818 F.3d 549, 555 (9th Cir. 2016); see also
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). The three-judge panel reasoned that had the
Boulder Fruit court not implicitly rejected the transfer-of-
risk test, the holding of the case necessarily would have been
different. Judge Melloy wrote a separate concurring opinion
suggesting that the Ninth Circuit, sitting en banc, should
eliminate a circuit split and expressly adopt a separate
threshold transfer-of-risk test joining several other circuits.
S & H Packing & Sales Co., 850 F.3d at 451 (Melloy, J.,
concurring). 7 A majority of the active judges on this Court
agreed to rehear this appeal en banc.

                                 I

    We have jurisdiction under 28 U.S.C. § 1291. Boulder
Fruit, 251 F.3d at 1270. “We review grants of summary
judgment de novo.” Balint v. Carson City, Nev., 180 F.3d
1047, 1050 (9th Cir. 1999). We must determine, viewing the
evidence in the light most favorable to the nonmoving party,
whether the district court applied the substantive law
correctly. Id.

                                 II

    Although the parties ask us to answer many
particularized questions on appeal, we resolve only one
issue: whether, in the context of determining the assets

    7
      This opinion is in substantial agreement with arguments made in
Judge Melloy’s concurrence and draws heavily therefrom.
12      G.W. PALMER & CO. V. AGRICAP FINANCIAL

included in a PACA trust, a court needs to conduct a
threshold true sale inquiry before it determines whether a
transaction transferring PACA trust assets was a
commercially reasonable sale. For the reasons stated below,
we join the Second, Fourth and Fifth Circuits in adopting a
threshold true sale test to determine whether assets
transferred in transactions that are labeled “sales” remain
assets of a PACA trust. We hold that a court must conduct
a two-step inquiry when determining whether the questioned
transaction is a sale or creates a security interest, i.e., a loan.
First, a court must apply a threshold true sale test of which
the transfer-of-risk is a key, but not the sole, factor. If a court
concludes that there was a true sale, it must then determine
if the transaction was commercially reasonable. If there was
not a true sale, the court’s inquiry stops there and the assets
remain in the trust. If there was a true sale but the sale was
not commercially reasonable, there is a breach of the trust
and the assets likewise remain in the trust. If, however, the
court concludes that there was a true sale and that the
transaction was commercially reasonable, the buyer owns
the assets free and clear of the trust. We hold that a district
court should look to the substance of the transaction to
determine whether the transaction is a true sale or a secured
loan. In doing so, the transfer of risk should be a primary
factor to which a court looks.

                               III

    We elaborate on the principles just summarized, with
reference to pertinent authorities and reasoning.

                                A

    “Congress enacted PACA in 1930 to prevent unfair
business practices and promote financial responsibility in the
fresh fruit and produce industry.” Boulder Fruit, 251 F.3d
       G.W. PALMER & CO. V. AGRICAP FINANCIAL             13

at 1270. Congress amended PACA in 1984 “‘to remedy
[the] burden on commerce in perishable agricultural
commodities and to protect the public interest’ caused by
accounts receivable financing arrangements that ‘encumber
or give lenders a security interest’ in the perishable
agricultural commodities superior to the growers.” Id.
(alteration in original) (quoting 7 U.S.C. § 499e(c)(1)).
PACA creates a statutory trust in an effort to remedy this
burden:

       Perishable agricultural commodities received
       by a commission merchant, dealer, or broker
       in all transactions, and all inventories of food
       or other products derived from perishable
       agricultural      commodities,      and      any
       receivables or proceeds from the sale of such
       commodities or products, shall be held by
       such commission merchant, dealer, or broker
       in trust for the benefit of all unpaid suppliers
       or sellers of such commodities or agents
       involved in the transaction, until full payment
       of the sums owing in connection with such
       transactions has been received by such
       unpaid suppliers, sellers, or agents.

7 U.S.C. § 499e(c)(2). “This provision imposes a ‘non-
segregated floating trust’ on the commodities and their
derivatives, and permits the commingling of trust assets
without defeating the trust.” Endico Potatoes, 67 F.3d at
1067 (citation omitted).

   The House Report explaining the 1984 PACA
amendments states:

       [Purchasers/Distributors  of   perishable
       agricultural commodities] in the normal
14     G.W. PALMER & CO. V. AGRICAP FINANCIAL

       course of their business transactions, operate
       on bank loans secured by the inventories,
       proceeds or assigned receivables from sales
       of perishable agricultural commodities,
       giving the lender a secured position in the
       case of insolvency. Under present law,
       sellers of fresh fruits and vegetables are
       unsecured creditors and receive little
       protection in any suit for recovery of
       damages where a buyer has failed to make
       payment as required by contract.

H.R. Rep. No. 98-543 at *3 (1984), as reprinted in 1984
U.S.C.C.A.N. 405, 407. The Second Circuit, citing this
report, explained:

       According to Congress, due to the need to sell
       perishable commodities quickly, sellers of
       perishable commodities are often placed in
       the position of being unsecured creditors of
       companies whose creditworthiness the seller
       is unable to verify. Due to a large number of
       defaults by the purchasers, and the sellers’
       status as unsecured creditors, the sellers
       recover, if at all, only after banks and other
       lenders who have obtained security interests
       in the defaulting purchaser’s inventories,
       proceeds, and receivables.

Endico Potatoes, 67 F.3d at 1067. Given this history, it is
evident that our focus should be upon the true nature of the
transactions at issue and the true nature of the parties’
roles—that of seller and buyer or that of secured lender and
borrower.
       G.W. PALMER & CO. V. AGRICAP FINANCIAL               15

    Perhaps most importantly, Congress intended to shield
agricultural growers from risk in enacting PACA “to protect
the public interest.” 7 U.S.C. § 499e(c)(1). PACA’s
purpose is not to give a one-sided boon to growers, but
instead, to benefit all parties and society by ensuring that
growers are protected; lenders know their risk; and
agricultural commerce is encouraged to benefit society.

                              B

     We apply general trust principles to questions involving
PACA trusts, unless those principles directly conflict with
PACA. Boulder Fruit, 251 F.3d at 1271; see also Endico
Potatoes, 67 F.3d at 1067; Reaves, 336 F.3d at 413. Because
ordinary principles of trust law apply to trusts created under
PACA, trust assets are excluded from the bankruptcy estate
if the PACA trustee goes bankrupt. Sunkist Growers, Inc. v.
Fisher, 104 F.3d 280, 282 (9th Cir. 1997).

    A breach of trust occurs when there is “a violation by the
trustee of any duty which as trustee he owes to the
beneficiary.” Boulder Fruit, 251 F.3d at 1271 (quoting
Restatement (Second) of Trusts § 201 (1959)). A trustee is
required by federal regulation “to maintain trust assets in a
manner that such assets are freely available to satisfy
outstanding obligations to sellers of perishable agricultural
commodities.” Id. (quoting 7 C.F.R. § 46.46(d)(1)). The
duty to maintain trust assets is far-reaching. Federal
regulation dictates that “[a]ny act or omission which is
inconsistent with this responsibility, including dissipation of
trust assets, is unlawful and in violation of [PACA].” Id.
(second alteration in original) (quoting 7 C.F.R.
§ 46.46(d)(1)). Non-segregated floating trusts under PACA
permit the commingling of trust assets and allow the PACA
trustee to convert trust assets into proceeds. Boulder Fruit,
251 F.3d at 1272; see also Endico Potatoes, 67 F.3d at 1067;
16      G.W. PALMER & CO. V. AGRICAP FINANCIAL

A&J Produce Corp. v. Bronx Overall Econ. Dev. Corp.,
542 F.3d 54, 57–58 (2d Cir. 2008). The transferees of trust
assets, such as AgriCap here, “are liable only if they had
some role in causing the breach or dissipation of the trust.”
Boulder Fruit, 251 F.3d at 1272; Restatement (Second) of
Trusts § 283 (1959) (“If the trustee transfers trust property
to a third person . . . [without] commit[ting] a breach of trust,
the third person holds the interest so transferred or created
free of the trust, and is under no liability to the beneficiary.”).

                                C

    Against this industry and legal background, a PACA
trustee’s true sale of accounts receivable for a commercially
reasonable discount from the accounts’ face value is not a
dissipation of trust assets and, therefore, is not a breach of
the PACA trustee’s duties. Nickey Gregory, 597 F.3d at 598
(“The assets of the trust would thus have been converted into
cash and the receivables would no longer have been trust
assets. Obviously, under this scenario, [the factoring agent]
would own the accounts receivable and would be able to do
with them what it wished.”); Reaves Brokerage, 336 F.3d at
413–14 (holding that “a ‘bonafide purchaser’ of trust assets
receives the assets free of claims by trust beneficiaries” and
noting that the determinative issue on appeal is whether the
“factoring agreement” was a loan secured by accounts
receivable or a true sale of accounts receivable); Boulder
Fruit, 251 F.3d at 1271–72 (“[N]othing in PACA or the
regulations prohibits PACA trustees from attempting to turn
receivables into cash by factoring. To the contrary a
commercially reasonable sale of accounts for fair value is
entirely consistent with the trustee’s primary duty.”); Endico
Potatoes, 67 F.3d at 1067–69 (noting that “the well
recognized principle from trust law that a bona fide
purchaser of trust assets receives the assets free of any claim
           G.W. PALMER & CO. V. AGRICAP FINANCIAL                   17

by the trust beneficiaries” was determinative, and because
the financier had received only a security interest, its interest
was subject to the rights of the growers). That sale is, in
substance, a conversion of trust assets from accounts
receivable into cash. See Boulder Fruit, 251 F.3d at 1271.

     The Second, Fourth, and Fifth Circuits have held that any
purported security interest for a lender in PACA-trust assets
is inferior to the trust beneficiaries’ claims and rights. See,
e.g., Nickey Gregory, 597 F.3d at 598–99 (“Thus, if the
accounts receivable were held by [the factoring agent] as
collateral to secure repayment of a loan, they would also
have been held for the benefit of produce sellers, and the
produce sellers would have effectively enjoyed a first-
creditor position in them.”); Endico Potatoes, 67 F.3d at
1069 (“Because [the factoring agent] held only a security
interest . . . its interest is subject to the rights of the PACA
trust beneficiaries. . . . [The factoring agent] must, therefore,
disgorge amounts collected on the accounts after [the
distributor’s] bankruptcy filing to the extent necessary to
satisfy claims of PACA trust beneficiaries.”); A&J Produce,
542 F.3d at 58 (“A creditor holding ‘only a security interest,’
therefore, retains that interest ‘subject to the rights of the
trust beneficiaries.’”). Notwithstanding the absence of
discussion of a “true-sale” or “transfer-of-risk” test, even
Boulder Fruit made clear that a lender’s use of PACA-trust
assets as collateral to secure a debt could not create a priority
security interest ahead of the position enjoyed by PACA
trust beneficiaries. 8


    8
        The Ninth Circuit stated:

           Farmer sells oranges on credit to Broker. Broker turns
           around and sells the oranges on credit to Supermarket,
18      G.W. PALMER & CO. V. AGRICAP FINANCIAL

                                   IV

    The treatment of true sales and security interests under
PACA and trust law is reasonably clear. But what is at issue
here, and is not perfectly clear, is the proper analysis to apply
when the true nature of the transaction is ambiguous—i.e.,
when it resembles a sale in some respects and yet looks like
a secured transaction in others. Growers and the Second,
Fourth, and Fifth Circuits would apply a threshold transfer-
of-risk test to determine if a transaction is a true sale or is
more accurately viewed as a secured lending relationship.
AgriCap, relying on Boulder Fruit, argues vigorously that
the court need only ask if the transaction was commercially
reasonable.

                                   A

    Boulder Fruit held that factoring agreements do not per
se breach the PACA trust because “a trustee can sell trust
assets unless the sale breaches the trust.” 251 F.3d at 1272.
The court concluded that “a commercially reasonable sale of
accounts for fair value is entirely consistent with the
trustee’s primary duty under PACA and 7 C.F.R.

        generating an account receivable from Supermarket.
        Broker then obtains a loan from Bank and grants Bank
        a security interest in the account receivable to secure
        the loan. Broker goes bankrupt. Under PACA, Broker
        is required to hold the receivable in trust for Farmer
        until Farmer was paid in full; use of the receivable as
        collateral was a breach of the trust. Therefore,
        Farmer’s rights in the Supermarket receivable are
        superior to Bank’s. In fact, as a trust asset, the
        Supermarket receivable is not even part of the
        bankruptcy estate.

Boulder Fruit, 251 F.3d at 1271.
         G.W. PALMER & CO. V. AGRICAP FINANCIAL                       19

§ 46.46(d)(1)—to maintain trust assets so that they are
‘freely available to satisfy outstanding obligations to sellers
of perishable commodities.’” Id. at 1271. Boulder Fruit
reasoned that the commercial reasonableness of a factoring
agreement depends upon the terms of the agreement. For
example, “[a] PACA trustee who sells accounts for pennies
on the dollar, just to turn a quick buck, might well have
breached the PACA trust, while a trustee who factors
accounts at a commercially reasonable rate would not.” Id.

    The Boulder Fruit panel, in reaching its conclusion, said
that the factoring agreement “actually enhanced the trust.”
Id. at 1272. Boulder Fruit considered not only the initial up-
front payment from the factoring agent to the distributor but
also the actual sums paid to the distributor by the factoring
agent while performing the factoring agreement. 9 Id.
Boulder Fruit did not, however, examine the substance of
the rights transferred to determine what the factoring agent
agreed to do, what risk the factoring agent accepted when it
accepted the right to collect on the transferred accounts, and
whether the transaction should properly be deemed a true
sale rather than a mere secured lending arrangement. Rather,
Boulder Fruit characterized the transaction as a sale or
factoring agreement without discussing the factoring agent’s
rights and ability to seek recourse against the distributor.

   In sharp contrast, the Second, Fourth, and Fifth Circuits
found it necessary to examine the rights and risks transferred
between the parties to a factoring agreement. The courts in
    9
      The 20% discount at issue in Boulder Fruit represented a discount
from the accounts’ face value as paid in an initial payment from the
factoring agent to the PACA trustee. It did not represent the final amount
paid nor did it represent a floor or a ceiling on what the factoring
agreement in Boulder Fruit could have required the factoring agent to
pay.
20      G.W. PALMER & CO. V. AGRICAP FINANCIAL

these cases examined the text and legislative history of
PACA and the regulations promulgated under PACA to
conclude that Congress intended to promote the interests of
produce growers above the interests of secured lenders. See,
e.g., Nickey Gregory, 597 F.3d at 594–95, 598–99; Endico
Potatoes, 67 F.3d at 1066–68. The Fourth Circuit stressed
that representatives of the secured lending community had
voiced concern over PACA’s likely effect upon secured
lenders and the factoring industry. Nickey Gregory,
597 F.3d at 599. That court concluded that Congress
nevertheless found that the balance of policy interests
favored placing those lenders in a position inferior to unpaid
growers. Id.

    The Endico Potatoes court resolved a case wherein
Merberg, a dealer in perishable agricultural commodities
received financing from CIT, and CIT held security interests
in all Merberg’s assets including accounts receivable.
67 F.3d at 1066. Merberg went through a bankruptcy and
the growers sought reimbursement from CIT for the amounts
left unpaid. Id. The court defined the issue before it as
whether the transaction between CIT and Merberg
constituted a purchase for value or whether the exchange
gave CIT no more than a security interest. Id. at 1068. The
court reasoned, “[i]n determining the substance of the
transaction, the Court may look to a number of factors,
including the right of the creditor to recover from the debtor
any deficiency if the assets assigned are not sufficient to
satisfy the debt, the effect on the creditor’s right to the assets
assigned if the debtor were to pay the debt from independent
funds, whether the debtor has a right to any funds recovered
from the sale of assets above that necessary to satisfy the
debt, and whether the assignment itself reduces debt.” Id.
That court found, “[t]the root of all of these factors is the
transfer of risk.” Id. at 1069. The court relied upon the fact
         G.W. PALMER & CO. V. AGRICAP FINANCIAL                         21

that the agreement had a provision that let CIT demand
payment at any time and a provision that terminated CIT’s
interest if Merberg paid its outstanding obligation. Id. The
court held that because CIT only held a security interest in
Merberg’s accounts receivable, CIT’s interest was subject to
the rights of the PACA trust beneficiaries. Id.

    A question may be raised whether the Second Circuit no
longer espouses the view that the substance of an agreement
must be analyzed when determining the rights of the parties.
In E. Armata, Inc. v. Korea Commercial Bank of New York,
367 F.3d 123, 126 (2d Cir. 2004), the Second Circuit
considered whether, under PACA, a bank was liable to the
beneficiaries of a PACA trust for receipt of funds when the
bank extended revolving overdraft privileges to the produce
dealer and applied deposited PACA funds to reduce the
negative balance in the produce dealer’s overdrawn account.
Id. The court, in concluding that the bank was not liable to
PACA trust beneficiaries, reasoned that the bank did not
breach the trust. Id. at 131; see also American Banana Co.,
Inc. v. Republic Nat’l Bank of NY, N.A., 362 F.3d 33, 42 (2d
Cir. 2004) (“Nor are we convinced that a trustee’s payments
of commercially reasonable fees and interest in exchange for
routine banking services such as check cashing services and
overdraft privileges extended to facilitate payments to
beneficiaries constitute a breach of the PACA trust.”). The
Second Circuit in its E. Armata decision, while it cited
Boulder Fruit for specified purposes, 10 did not purport to
overrule Endico Potatoes or to limit it.


    10
       Specifically, the court there said in part: “We agree with the Ninth
Circuit in Boulder Fruit, that it is not a breach of trust for a PACA dealer
to use PACA funds to enter into ‘commercially reasonable’ transactions
with parties not protected by PACA, particularly where such transactions
22      G.W. PALMER & CO. V. AGRICAP FINANCIAL

    A subsequent Second Circuit opinion, A&J Produce
Corp. v. Bronx Overall Economic Development Corp, held
that a lender who had a lien on trust assets held that lien
“subject to the rights of the trust beneficiaries” i.e., the
growers. 542 F.3d 54, 58 (2d Cir. 2008). It further noted
that “[a]ny other result would elevate the rights of secured
creditors above those of PACA creditors, contrary to the
intent to the statute. Id. at 59; see also Coosemans
Specialties, Inc. v. Gargiulo, 485 F.3d 701, 707 (2d Cir.
2007) (noting that in E. Armata they did not hold that any
commercially reasonable transaction avoids breaching
fiduciary responsibilities but that “whether a transaction is
commercially reasonable is simply one factor that may be
relevant in determining whether a PACA trustee has met its
ultimate burden of proving that trust assets remained freely
available to plaintiffs”).

    In Reaves, the Fifth Circuit considered a case where
Reaves, a produce seller, sold produce to Sunbelt Fruit &
Vegetable Company, a wholesaler, and Sunbelt ceased
operations owing Reaves almost $200,000 in unpaid
invoices. 336 F.3d at 412. Reaves sued Fidelity Factors,
LLC, because Fidelity had purchased particular accounts
receivable from Sunbelt. Id. The court framed the issue
before it as whether the “factoring agreement” between
Sunbelt and Fidelity was a loan secured by accounts
receivable or a sale of accounts receivable. Id. at 414. The
court reasoned that the “[c]haracterization of the agreement
turns on the ‘substance of the relationship’ between Fidelity
and Sunbelt, ‘not simply the label attached to the
transaction.’” Id. The court looked to the Second Circuit’s
risk-transfer analysis and also conducted an independent

facilitate a PACA dealer’s fulfillment of his obligations to PACA
beneficiaries.” Id. at 133.
       G.W. PALMER & CO. V. AGRICAP FINANCIAL             23

examination of the substance of the agreement and
concluded that the relationship between Fidelity and Sunbelt
was that of a secured lender and debtor. Id. The court
reasoned that the agreement and its provisions, when read in
their entirety, “confirm that the risk of non-payment or
underpayment is entirely borne by Sunbelt.” Id. at 415
(emphasis in original). The court pointed to continuing lien
and single indebtedness language, a personal guaranty from
Sunbelt’s president, and recordation of the agreement with
the UCC to support its conclusion. Id. at 416. The court also
distinguished Boulder Fruit because it found that the
commercially reasonable analysis did not apply when the
factoring agreement is the “functional equivalent” of a
secured lending agreement, noting that the “discrete issue
before the Boulder Fruit court was whether an
acknowledged factoring agreement was ‘commercially
reasonable’.” Id. at 417 (emphasis in original).

    In Nickey Gregory, the Fourth Circuit addressed a case
where Robison Farms, a distributor of produce, bought
produce from growers on short-term credit, and distributed
the produce to restaurants and school systems on credit
creating accounts receivable. 597 F.3d at 596. When
Robison Farms began experiencing financial difficulties it
sought a line of credit from AgriCap and assigned the
accounts receivable to AgriCap in exchange for an advance
of 80% of the face value of the accounts. Id. AgriCap
collected the accounts receivable, kept the 80% for itself,
and remitted the remaining 20% to Robison Farms minus
fees and interest. Id. Notwithstanding the credit agreement,
Robison Farms closed its doors without paying the growers
what was owing and filed for bankruptcy. Id. at 596–97.
The court framed the issue before it as whether the district
court erred in concluding that AgriCap’s transaction was a
loan agreement. Id at 600. The Fourth Circuit upheld the
24      G.W. PALMER & CO. V. AGRICAP FINANCIAL

district court’s conclusion that the transaction was a loan
agreement because (1) AgriCap referred to itself as a
“Lender” and Robison Farms a “Borrower” in the
agreement, (2) Robison farms did not transfer risk of
noncollection of accounts receivable to AgriCap—AgriCap
had a right to demand that Robison Farms repurchase any
receivable that went unpaid or was disputed, (3) documents
related to the transaction referred to the accounts receivable
as collateral for repayment, (4) AgriCap had a Subordination
Agreement that gave it “a first priority security interest in the
Collateral”, (5) the owner of Robison Farms gave AgriCap a
personal guarantee, and (6) AgriCap filed a UCC-1
Financing Statement for the transaction. Id. at 601–03. The
court concluded that the substantive aspects of the
transaction were inconsistent with a sale of assets, and that
the transaction was in “essence a loan in the form of a
revolving line of credit secured by accounts receivable.” Id.
at 603. The court finally concluded that because the
transaction was a loan, the accounts receivable and their
proceeds never left the PACA trust, and their proceeds had
to be made available for payment of the claims of unpaid
PACA creditors first. Id.

    The Fourth Circuit distinguished Boulder Fruit
concluding that in Boulder Fruit there was a “true factoring
relationship, in which the receivables were actually sold to
the factor.” Id. at 604. The Fourth Circuit found that
Boulder Fruit did not question whether there had actually
been a sale. Id. at 604.

    The weight of authority and reasoning in the Second,
Fourth and Fifth Circuit cases suggest that “transfer of risk”
and “true sale” considerations should be assessed before
considering commercial reasonableness when considering
the propriety of a transfer of trust assets. We conclude that
        G.W. PALMER & CO. V. AGRICAP FINANCIAL               25

adoption of the transfer-of-risk test or true sale test is the
logical outcome of a reading of PACA, PACA’s legislative
history, and consideration of PACA’s purpose.

                               B

    Given the remedy that Congress created to alleviate the
perceived problem of conflict in rights of agricultural
growers and secured lenders—creation of the trust elevating
commodities sellers’ interests over lenders’ interests—
Congress’s clear concern with the relative interests of
secured lenders and commodities sellers, and the general
contours of trust law—in particular, a trustee’s ability to sell
or convert trust assets—courts must focus on the true
substance of PACA-related transactions and not on artificial
indicators or labels. It runs counter to PACA and its history
to allow the simple use of the words “sale,” “purchase,” or
“factoring agreement” to be central for purposes of assessing
the relative rights of lenders and produce growers.

    AgriCap at oral argument asserted that the AgriCap
transaction benefitted Growers as AgriCap paid Tanimura
more than the 80% discount on the accounts receivable and
never used the recourse provision. The Second, Fourth, and
Fifth Circuits conclude, however, that a transfer of the
primary or direct risk of non-payment on the accounts is the
hallmark of a true sale. Nickey Gregory, 597 F.3d at 601–
03; Reaves Brokerage, 336 F.3d at 417; Endico Potatoes,
67 F.3d at 1068–69. See also In re Arctic Exp. Inc., 636 F.3d
781, 800 (6th Cir. 2011) (“The rationale of the Fourth
Circuit’s decision in Nickey Gregory is transferable to the
case at bar, which involves a similar revolving loan
agreement secured by Arctic’s accounts receivable.”).
These courts and PACA regulations assess trust asset
encumbrance in terms of what a factoring agreement could
authorize and not in terms of what money was actually paid
26      G.W. PALMER & CO. V. AGRICAP FINANCIAL

to the trustee under the agreement. See, e.g., 7 C.F.R.
§ 46.46(a)(2) (“‘Dissipation’ means any act or failure to act
which could result in the diversion of trust assets or which
could prejudice or impair the ability of unpaid suppliers,
sellers, or agents to recover money owed in connection with
produce transactions.”).

    In assessing whether a true sale occurred, the Fourth
Circuit adopted the transfer-of-risk test developed by the
Second Circuit in Endico Potatoes. Nickey Gregory,
597 F.3d at 600–03. There, the Second Circuit distinguished
between direct risk and secondary or derivative risk. Endico
Potatoes, 67 F.3d at 1068–69. The Endico court said that it
was appropriate to examine several factors such as “[1] the
right of the creditor to recover from the debtor any
deficiency if the assets assigned are not sufficient to satisfy
the debt, [2] the effect on the creditor’s right to the assets
assigned if the debtor were to pay the debt from independent
funds, [3] whether the debtor has a right to any funds
recovered from the sale of assets above that necessary to
satisfy the debt, and [4] whether the assignment itself
reduces the debt.” Endico Potatoes, 67 F.3d at 1068. The
court in Endico Potatoes concluded: “The root of all of these
factors is the transfer of risk.” Id. at 1069. Finally, the court
there summarized:

        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
        G.W. PALMER & CO. V. AGRICAP FINANCIAL               27

       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.

Id. (emphasis in original).

    We conclude that this transfer-of-risk test should be
applied to avoid reliance on labels in factoring agreements
that would defeat the purposes of PACA. As Judge Melloy
reasoned in his separate concurrence in the three-judge
panel’s decision: “A factoring agent who accepts risk of non-
payment on the transferred accounts is the owner of the
accounts, for better or worse . . . [internal citation omitted].
That risk will be reflected in the price. A factoring agent
who functionally serves only as a lender and collection firm,
however, accepts accounts for collection but enjoys the right
to force the distributor to repurchase non-performing
accounts. Such a factoring agent faces much less risk—risk
measured only by the limitations on the repurchase
provisions and by the distributor’s solvency and ability to
perform under the agreement.” S & H Packing & Sales Co.,
850 F.3d at 457. The price paid for the accounts with and
without recourse will differ.

    AgriCap nevertheless argues that adoption of the
transfer-of-risk test would lead to absurd results in which a
factoring agent remains liable to growers even though the
factoring agent’s payments to a distributor were sufficient,
in theory, for the distributor to pay growers. AgriCap is
wrong to describe such a scenario as absurd. It is instead the
result of a congressional policy choice. There is an analogy
in the relationship between general contractors,
subcontractors, and property owners in the context of
28     G.W. PALMER & CO. V. AGRICAP FINANCIAL

mechanics’ liens. It is well established that a property owner
who makes final payment to a general contractor without
first securing a release of subcontractors’ mechanics’ liens
holds the property subject to those liens with exposure to the
subcontractors’ claims despite substantial payments to the
general contractor. See, e.g., Jackson v. Flohr, 227 F.2d 607,
611 (9th Cir. 1955) (“Mechanics’ liens are provided by
statute in order to give the furnisher of labor and material,
security against the realty so that it is unnecessary to rely
upon the personal responsibility of the contractor.” ); Brewer
Corp. v. Point Ctr. Fin., Inc., 223 Cal. App. 4th 831, 839
(2014), as modified on denial of reh’g (Feb. 27, 2014) (“A
mechanic’s lien is a claim against real property, which may
be filed if a claimant has provided labor or furnished
materials for the property and has not been paid.”); Gary C.
Tanko Well Drilling, Inc. v. Dodds, 117 Cal. App. 3d 588,
593 (Ct. App. 1981) (explaining that a mechanic’s lien is the
remedy provided by the California Constitution for
enforcing against the owner of property payment of the debt
incurred for the performance of labor, or the furnishing of
material used in construction). Unpaid subcontractors will
have interests that prevail over the property owner (who may
seek recourse against the general contractor, but who still
face direct liability to the subcontractors on their liens).
State legislative action places the interests of subcontractors
ahead of those of property owners. Property owners must
manage this risk by diligently ensuring that subcontractors’
liens are released before giving full payment to a general
contractor.

    Similarly, by placing the burden of due diligence on
lenders rather than growers, Congress was well aware of the
effect it was imposing on the lending industry. As Judge
Melloy previously observed, “Congress concluded,
however, that lenders could adapt. The House Committee
       G.W. PALMER & CO. V. AGRICAP FINANCIAL             29

expressly noted that anticipated improvements to commerce
would offset the lenders’ anticipated burdens.” S & H
Packing & Sales Co., 850 F.3d at 458; see also H.R. Rep.
No. 98-543 at *4 (“[T]he statutory trust requirements will
not be a burden to lending institutions. They will be known
to and considered by prospective lenders in extending credit.
The assurance the trust provision gives that raw products
will be paid for promptly and that there is a monitoring
system provided for under [PACA] will protect the interests
of the borrower, the money lender, and the fruit and
vegetable industry.”).

    The propriety of comparing the PACA situation to
mechanics’ liens finds support in an examination of the
regulations promulgated under PACA. Again, the reasoning
in Judge Melloy’s concurrence is helpful: “These regulations
do not ask whether a factoring arrangement in fact resulted
in a transfer of funds sufficient to pay growers throughout
the course of performance under a factoring agreement.
Rather, the regulations ask whether such an arrangement
could impair trust assets. See 7 C.F.R. § 46.46(a)(2). Just
as a property owner must conduct due diligence to avoid
liability to a subcontractor before making final payment to a
general contractor, a factoring agent with knowledge of
PACA must act with diligence. It does not matter that a
factoring agent paid a distributor sufficient funds to pay
growers any more than it matters that a property owner paid
a general contractor sufficient funds to pay subcontractors.
In light of these statutory and common law protections, it
cannot properly be the case that a distributor and factoring
agent may defeat trust beneficiaries’ rights merely by
invoking the labels ‘sale’ or ‘factoring agreement.’” S & H
Packing & Sales Co., 850 F.3d at 458.
30      G.W. PALMER & CO. V. AGRICAP FINANCIAL

    Further, there would seem to be no doubt that a
legislature has the power to define and limit liens. See Mercy
Hosp. & Med. Ctr. v. Farmers Ins. Grp. of Companies,
932 P.2d 210, 215 (Cal. 1997) (“Whatever principles might
generally apply to liens, former section 3045.4 is a statutory,
not a common law, lien. The Legislature is, of course, free
to define and limit such a lien, and has done so in this case.”).
As recognized under California law, when there are
competing liens, “the text of the statute prevails if it
establishes the priority to be accorded to the statutory lien.”
County of San Bernardino v. Calderon, 148 Cal. App. 4th
1103, 1112 (2007). The Calderon court concluded that the
California’s statutory hospital lien did not have priority over
other liens by right, stating, “other liens may take priority”.
Id. at 1113 (citing Cal. Civ. Code § 3045.4). The court
reasoned that the California legislature knew how to create
express priority as evidenced by its treatment of a county’s
right to action against a third party for reimbursement, where
the statute states that the county has a “first lien”. Id. (citing
Gov. Code § 23004.1). Other examples of states creating
priority interests over secured creditors are seen in Iowa’s
agricultural supply dealer lien statute and Wisconsin’s tow
truck statutory lien. In Iowa, agricultural supply dealers
have a “super priority” interest above bank lenders in the
livestock of the farmers. In re Schley, 565 B.R. 655, 658
(Bankr. N.D. Iowa 2017) (“An agricultural supply dealer
who provides an agricultural supply to a farmer shall have
an agricultural lien as provided in section 554.9102.”); see
Iowa Code § 570A.5. In Wisconsin, a person who has the
license to perform towing services and does so has a priority
interest, up to a statutory amount, over a bank’s lien and has
a right to retain possession of the vehicle until its costs are
satisfied. See In re Ingram, 508 B.R. 98, 102 (Bankr. E.D.
Wis. 2014); Wis. Stat. § 779.415(1g)(a). Indeed, whenever
we deal with competing liens, whether established by
       G.W. PALMER & CO. V. AGRICAP FINANCIAL               31

legislations or common law, we deal not with the question
of whether a party has a valid debt obligation that is secured
and should be paid, but rather with the question of which
claimant to funds has priority.

    Similarly here, Congress has made a clear policy choice
giving PACA creditors priority over secured creditors. We
must keep PACA’s purpose in mind when reviewing
transactions that may in substance limit that congressional
policy.

                              C

    The dissent is not incorrect in asserting that the
distinction between a sale and a secured lending agreement
does not ordinarily make a difference under general trust
principles, so long as the transaction at issue is commercially
reasonable. But we respectfully and forcefully disagree that
this is true in the context of a PACA trust. See Boulder Fruit,
251 F.3d at 1271 (“[G]eneral trust principles [apply] to
questions involving the PACA trust, unless those principles
directly conflict with PACA.”).

    PACA was enacted to protect trust beneficiaries, who
were often in the position of unsecured creditors, from
receiving little or nothing when a distributor went bankrupt.
See 7 U.S.C. § 499e(c)(1). The dissent is not completely
blind to the policy motivation behind PACA of protecting
growers over lenders, but we think the dissent gives too little
weight to the protective purpose of PACA. The dissent
strives to add protection for the benefit of lenders, but loses
sight of the PACA statutory language establishing the PACA
trust, and disregards the purpose of PACA to protect
agricultural growers.
32      G.W. PALMER & CO. V. AGRICAP FINANCIAL

    To accomplish its protective purpose, PACA
subordinates all secured creditor rights to the rights of the
unpaid growers and charges the PACA trustee to preserve
the rights of trust beneficiaries by making sure that PACA
trust assets—the accounts receivable—are not dissipated.
See id. at § 499e(c)(2); 7 C.F.R. 46.46(d)(1) (“[Trustees] are
required to maintain trust assets in a manner that such assets
are freely available to satisfy outstanding obligations to
sellers of perishable agricultural commodities. Any act or
omission which is inconsistent with this responsibility,
including dissipation of trust assets, is unlawful and in
violation of section 2 of the Act.”). When there is a sale of
assets—as relevant here, accounts receivable—there is a
conversion of the assets from one form, accounts receivable,
to another, cash. See Boulder Fruit, 251 F.3d at 1271. The
accounts receivable are no longer in the trust, and therefore,
there cannot be a dissipation of trust assets from the buyer’s
later collection on those receivables.

    When there is a secured lending agreement or loan,
however, the accounts receivable remain trust assets and are
only collateral to the lender. See Nickey Gregory, 597 F.3d
at 603. In that context, the trustee under PACA is obligated
not to dissipate those trust assets. See id. at 604. As the court
in Nickey Gregory correctly concluded, in those
circumstances, there is a breach of trust whenever the lender
recovers its fee or percentage from the accounts receivable
while the trust beneficiaries have not been fully
compensated. 597 F.3d at 604; see 7 C.F.R. § 46.46(a)(2)
(precluding the trustee from participating in “any act or
failure to act which could result in the diversion of trust
assets or which could prejudice or impair the ability of
unpaid suppliers, sellers, or agents to recover money owed
in connection with produce transactions”). This does not
mean that every loan or lending agreement made to a
         G.W. PALMER & CO. V. AGRICAP FINANCIAL                           33

distributor acts to breach a PACA trust, but it does mean that
whenever a loan is made, a PACA trustee must be careful to
ensure all trust beneficiaries are paid before the lender
collects. If a trustee gives a lender a security interest in
PACA trust assets, and the growers are not fully repaid, that
would be a breach of the PACA trust and a violation of
PACA.

    Here, whether the transaction at issue was a sale or a loan
makes a difference because a sale removes the accounts
receivable from the PACA trust while the enforcement of a
loan in this case would have breached the PACA trust
because AgriCap received its full payment while GW Palmer
remained unpaid. Therefore, the district court must
determine whether the transaction was in substance a sale or
a loan. 11


    11
        The dissent seeks to give financial institutions the edge in this case
over agricultural growers.         But the analysis of the dissent is
fundamentally flawed because it elevates the interests of financial
institutions, the factoring organization AgriCap, over the interests of
agricultural growers who PACA aimed to protect. As examples:

    •    First, the dissent says that “[t]he majority posits that the growers
         have a priority lien on their produce, which allows the trust to
         accept the benefit of a loan agreement but disregard the
         obligation to repay it.” Dissent at 37. But nowhere do we
         suggest that trusts are free to disregard their obligations to
         lenders. A trustee cannot, however, enforce an obligation to a
         lender above its statutory obligation to trust beneficiaries to not
         dissipate trust assets.

    •    Second, the dissent suggests that if “the trustee still owed
         AgriCap money on the loan, then AgriCap would be entitled to
         foreclose its security interest on the accounts receivable
         according to the terms of the loan agreement.” Dissent at 53
         n.15. This argument exceeds what even the Appellee AgriCap
34       G.W. PALMER & CO. V. AGRICAP FINANCIAL




         understands PACA to allow. AgriCap’s counsel admitted
         during oral argument, that if it was a true lending agreement,
         any interest that it had in the accounts receivable as a creditor
         would be subordinate to the growers. Ninth Circuit Court of
         Appeals, Oral Argument 14-56069 G.W. Palmer v. AgriCap
         Financial Corp., YOUTUBE 27:07–28:47 (Sept. 20, 2017),
         https://www.youtube.com/watch?v=iikaXV7nkaw.Only an
         argument in desperation would ignore this concession.

     •   Third, the dissent contends that we have not considered the
         implications of our decision today. Dissent at 60–61 n.21. That
         is incorrect. We have stated what we believe to be the proper
         test for the district court to employ in the first instance, realizing
         the limits of our ability to review issues like damages when
         there is no prior development of the record on appeal on those
         and related issues. Our court should not participate in the
         dissent’s interested speculation and conjecture on issues not
         before us.

     •   Fourth, the dissent offers no judicial authority supporting its
         view that under PACA a commercially reasonable lending
         agreement can displace the trust beneficiary rights of the
         agricultural growers. Further, while challenging the strength of
         the various circuit precedents that we contend are aligned with
         our decision, the dissent unmistakably concedes that its position
         would squarely conflict with the decision of the Fourth Circuit
         in Nickey Gregory. Dissent at 54–55. The dissent makes this
         concession arguing more or less that it thinks Nickey Gregory
         is “critically flawed.” Dissent at 52. However, given the
         language and purposes of PACA, we see no reason why we
         should engineer a conflict with the Fourth Circuit’s decision in
         Nickey Gregory. See Kelton Arms Condo. Owners Ass’n, Inc.
         v. Homestead Ins. Co., 346 F.3d 1190, 1192 (9th Cir. 2003)
         (“[W]e decline to create a circuit split unless there is a
         compelling reason to do so” particularly when “rules are best
         applied uniformly.”); CTIA-The Wireless Ass’n v. City of
         Berkeley, California, 873 F.3d 774, 776 (9th Cir. 2017).
         G.W. PALMER & CO. V. AGRICAP FINANCIAL                      35

                                   V

    Congress intended PACA to prevent secured lenders
from defeating the rights of PACA-trust beneficiaries. The
growers in this Circuit will have effectively lost that
protection if lenders gain protection by labeling what are in
substance security agreements as if they were factoring
agreements. The Congressional focus upon the relative
rights of these two groups, growers and lenders, is evident.
For this reason, before a court assesses the commercial
reasonableness of a factoring agreement, it should first
examine the substance of a factoring agreement to ensure
that a true sale of the accounts receivable has occurred.
Absent a true sale, the labels surrounding a factoring
agreement should be of little or no consequence. The
substance of the transaction controls. If the substance of a
transaction reveals a secured lending arrangement rather
than a true sale, the accounts receivable remain trust assets.
In that case, unpaid trust beneficiaries will hold an interest
in accounts receivable and their proceeds superior to all
unsecured and secured creditors such that the trust
beneficiaries should prevail. 12

    The dominant consideration here is that the Congress of
the United States in its language in the PACA statute and in
the policy considerations underlying PACA has made a clear
choice that the rights of agricultural growers are to be given
priority over the rights of secured lenders through the vehicle
of the PACA trust. If Tanimura made a true sale of its
receivables to AgriCap, acting as a factor, and if it was for
fair value and a commercially reasonable amount, then the

    12
       We note that the calculation of damages, if applicable, is left to
the district court to review in the first instance after determining the
substance of the accounts receivable transactions.
36        G.W. PALMER & CO. V. AGRICAP FINANCIAL

PACA trust was not offended. But on the other hand, if the
challenged transaction was not a true sale but rather a
secured lending arrangement, then the plaintiff Growers
have a claim that must be resolved in further proceedings.
What makes this case difficult is that the challenged
transaction has some features both of a sale and of a loan.
On remand the district court may use all the tools at its
disposal, consistent with what we have said in this opinion,
including the taking of testimony and making findings of
fact, to determine whether the agreement was in substance a
true sale or in substance a lending agreement, and thereafter
to proceed in a way consistent with this opinion.

    We hold that before considering the commercial
reasonableness of a transaction, a court must first apply a
threshold true sale test for which the transfer-of-risk is a
primary factor. 13 To the extent that our en banc opinion
today contradicts Boulder Fruit, we overrule Boulder Fruit.

    We vacate the judgment of the district court and remand
for further proceedings consistent with this opinion.

     VACATED and REMANDED.

     Each party shall bear their own costs.




     13
       There remain other questions about when the transactions are
reviewed and whether to apply the test asset-by-asset or taken together.
We leave to the district court’s discretion to determine the appropriate
procedure for conducting this analysis as the district court is in a better
position to do so after briefing from the parties on these issues.
        G.W. PALMER & CO. V. AGRICAP FINANCIAL                37

IKUTA, Circuit Judge, with whom HURWITZ and
FRIEDLAND, Circuit Judges, join, dissenting:

    Congress enacted the Perishable Agricultural
Commodities Act (PACA) trust, 7 U.S.C. § 499e(c), to solve
a simple problem. Most produce growers sell their products
to distributors on credit. If the distributor goes bankrupt, the
growers are mere unsecured creditors and may only get cents
on the dollar. The distributor’s secured creditors, by
contrast, get first crack at the distributor’s assets. To address
this problem, PACA made the distributor a trustee, the
growers beneficiaries, and the growers’ produce (and any
resulting proceeds) trust assets. Congress thus ensured that
in bankruptcy, the proceeds from the sale of the growers’
produce would be available to pay off the growers.

    The appeal before us today poses a related scenario: If a
PACA trustee borrows money from a lender (using the trust
assets as collateral) in order to pay the growers, but the
money runs out before all the growers are paid, does the
lender have an obligation to make the unpaid growers
whole? The majority says yes: if the trustee fails to
reimburse the growers, the lender is on the hook. The
majority posits that the growers have a priority lien on their
produce, which allows the trust to accept the benefit of a loan
agreement but disregard the obligation to repay it. Because
this surprising conclusion is unmoored from both the text of
PACA and settled principles of trust law, I dissent.

                                I

    Congress initially enacted PACA, 7 U.S.C. §§ 499a–
499t, in 1930 to protect growers who marketed and sold their
produce through intermediaries. PACA did not originally
make growers beneficiaries of a trust. Rather, it required all
intermediary distributors—commission merchants, dealers,
38     G.W. PALMER & CO. V. AGRICAP FINANCIAL

and brokers—to operate under licenses issued by the
Secretary of Agriculture. 7 U.S.C. §§ 499c, 499d (1930).
PACA also prohibited these distributors from engaging in a
number of unfair business practices, such as failing to make
prompt and full payment to growers. Id. §§ 499b, 499e.

    Over time, it became evident that PACA gave growers
insufficient protection when distributors went bankrupt.
H.R. Rep. No. 98-543, at 3 (1983), as reprinted in 1984
U.S.C.C.A.N. 405, 407. As the House Committee explained
in its report on the proposed 1984 Amendments, sales of
perishable goods “must be made quickly or they are not
made at all.” Id. As a result, produce growers are usually
compelled to sell their goods on credit, even though it is
“often difficult to make credit checks, conditional sales
agreements, and tak[e] other traditional safeguards.” Id.

    This led to especially harsh consequences when
distributors went bankrupt. Distributors typically operate
“on bank loans secured by the inventories, proceeds or
assigned receivables from sales of perishable agricultural
commodities.” Id. Before Congress intervened, a distributor
could give the lender a security interest in all its assets,
including the produce it had purchased from growers on
credit and accounts receivable it received from the sale of
the produce to retailers. If the distributor went bankrupt, the
lender would have a secured claim in everything the
distributor owned. In contrast, the growers would be
“unsecured creditors and receive little protection in any suit
for recovery of damages where a buyer has failed to make
payment as required by the contract.” Id. The unsecured
growers would often receive only cents on the dollar on the
distributor’s unsecured IOUs. See A Bill to Amend the
Perishable Agricultural Commodities Act, 1930: Hearing on
S. 2052 Before the Subcomm. on Agric. Prod., Mktg. &
         G.W. PALMER & CO. V. AGRICAP FINANCIAL                       39

Stabilization of Prices of the S. Comm. on Agric., Nutrition
& Forestry, 98th Cong. 14 (1983) (statement of Keith Eckel,
President, Pennsylvania Farmers’ Association, on behalf of
American Farm Bureau Federation). A bankruptcy court
could even recapture payments the distributor had made to a
grower within 90 days of a bankruptcy and use them to pay
other creditors. Id.; see also 11 U.S.C. § 547.

    In light of this concern, Congress added a trust
mechanism to PACA in 1984. H.R. Rep. No. 98-543, at 4.
The 1984 Amendments’ operative trust provision, 7 U.S.C.
§ 499e(c)(2), requires a distributor to hold “perishable
agricultural commodities, and any receivables or proceeds
from the sale of such commodities or products . . . in trust
for the benefit of all unpaid suppliers or sellers” until the
distributor makes full payment to its growers. 1 This means
that the distributor is a trustee, the growers’ produce (and all
proceeds from sales of the produce) are the trust res, and the
growers are beneficiaries.

                                   A

    We “apply general trust principles to questions involving
the PACA trust, unless those principles directly conflict with
    1
       The 1984 Amendments also created a procedure for enforcing trust
rights. Section 499e(c)(3) provided that a beneficiary must preserve its
right to benefits by issuing written notice to the trustee within 30 days
after the trustee’s failure to make payment. 7 U.S.C. § 499e(c)(3).
Section 499e(c)(4) allowed a beneficiary to alternatively preserve its
rights through standardized language on billing or invoice statements.
Section 499e(c)(5) vested jurisdiction in federal district courts to hear
“(i) actions by trust beneficiaries to enforce payment from the trust, and
(ii) actions by the Secretary to prevent and restrain dissipation of the
trust.” The plaintiffs in this case included the standardized language on
their invoices to Tanimura Distributing, Inc. (TDI).
40       G.W. PALMER & CO. V. AGRICAP FINANCIAL

PACA.” Boulder Fruit Express & Heger Organic Farm
Sales v. Transp. Factoring, Inc., 251 F.3d 1268, 1271 (9th
Cir. 2001); see also Endico Potatoes, Inc. v. CIT
Grp./Factoring, Inc., 67 F.3d 1063, 1067 (2d Cir. 1995).
Like other circuits, we have turned to the Restatement of
Trusts for those principles. 2 See, e.g., Nickey Gregory Co.
v. AgriCap, LLC, 597 F.3d 591, 605–06 (4th Cir. 2010);
Reaves Brokerage Co. v. Sunbelt Fruit & Vegetable Co.,
336 F.3d 410, 413–14 & nn.17–18 (5th Cir. 2003); Boulder
Fruit, 251 F.3d at 1271–72; Endico Potatoes, 67 F.3d at
1067–68; Consumers Produce Co. v. Volante Wholesale
Produce, Inc., 16 F.3d 1374, 1380 (3d Cir. 1994); C.H.
Robinson Co. v. Tr. Co. Bank, N.A., 952 F.2d 1311, 1313–
14 (11th Cir. 1992).

    Two key principles of trust law are crucial to
understanding the trust mechanism in PACA. First, by
making the distributor a trustee and the growers’ produce
and the proceeds trust assets, Congress transformed how
these assets are treated in bankruptcy. A PACA trustee-
distributor wears two hats in a bankruptcy proceeding. All
of the debtor’s own assets are subject to the claims of its
creditors. But the trust assets do not belong to the debtor;
the distributor as trustee holds only a nonbeneficial, bare
legal title to such assets. Restatement (Third) of Trusts § 42

     2
        The current trend is to rely on both the Second and Third
Restatements of Trusts. See, e.g., United States v. Jicarilla Apache
Nation, 564 U.S. 162, 177–78, 183–84 (2011) (relying on both the
Second and Third Restatement); Skinner v. Northrop Grumman Ret.
Plan B, 673 F.3d 1162, 1166–67 (9th Cir. 2012) (same); Lonely Maiden
Prods., LLC v. GoldenTree Asset Mgmt., LP, 201 Cal. App. 4th 368, 379
(2011) (“California trust law is essentially derived from the Restatement
Second of Trusts. Over a number of years, the Restatement Second of
Trusts has been superseded by the Restatement Third of Trusts. As a
result, we may look to the Restatement Third of Trusts for guidance.”).
        G.W. PALMER & CO. V. AGRICAP FINANCIAL                      41

(Am. Law Inst. 2003). Therefore, the trust assets are not part
of the debtor’s bankruptcy estate. See 11 U.S.C. § 541(b),
(d); United States v. Whiting Pools, Inc., 462 U.S. 198, 205
n.10 (1983) (“Congress plainly excluded property of others
held by the debtor in trust at the time of the filing of the
petition” from the bankruptcy estate.); Sunkist Growers, Inc.
v. Fisher, 104 F.3d 280, 282 (9th Cir. 1997); Restatement
(Third) of Trusts § 42 cmt. c (“[T]he trustee’s personal
creditors or trustee in bankruptcy may not reach either the
trust property or the trustee’s nonbeneficial interest
therein.”).

    Second, by making the distributor a trustee of the PACA
trust, Congress authorized the distributor to manage the
produce and any resulting assets for the growers’ benefit,
subject to the standards that govern trustees. 3 Under basic
trust principles, a trustee has the same powers over trust
property as any other owner of property, “except as limited
by statute or the terms of the trust,” id. § 85; accord Unif.
Trust Code § 815 (Unif. Law Comm’n 2000). This includes
the authority “to sell trust property . . . in exchange for other
property,” Restatement (Third) of Trusts § 86 cmt. c, and the
“power to borrow money for trust purposes and to pledge,
mortgage, grant a deed of trust, or otherwise encumber trust
property,” id. § 86 cmt. d. Any money obtained from such
transactions becomes an asset of the trust estate. Third-party
lenders or purchasers dealing with a trustee generally hold
the assets or security interest free of the trust. See

    3
      Because the PACA trust is a “nonsegregated ‘floating’ trust,” it
permits “[c]ommingling of trust assets.” 7 C.F.R. § 46.46(b); H.R. Rep.
No. 98-543, at 4. Commingling relieves trustees of the burden “to
specifically identify all of the trust assets through each step” of
administering the trust. H.R. Rep. No. 98-543, at 5.
42          G.W. PALMER & CO. V. AGRICAP FINANCIAL

Restatement (Second) of Trusts § 283 (Am. Law. Inst.
1959). 4 The buyer or lender has no duty to “ensure that
assets transferred to the trustee are properly applied to trust
purposes.” Restatement (Third) of Trusts § 108(3)(b). Even
when the trustee breaches its fiduciary duty, someone who
“takes for value and without notice of the breach of trust,” is
a “bona fide” transferee, “holds the interest so transferred or
created free of the trust, and is under no liability to the
beneficiary.” Restatement (Second) of Trusts § 284. 5

    There is an important exception to this rule. If (1) the
trustee breaches its fiduciary duties when selling a trust asset
or granting a security interest in a trust asset, and (2) the third
party is on notice of this breach, the third party does not take
the asset or security interest free of the trust. Restatement
(Second) of Trusts § 288. Rather, the third party takes the
asset in “a constructive trust for the beneficiary of the trust,”
id. § 288 cmt. a., and may be compelled to restore the asset

     4
         Restatement (Second) of Trusts § 283 states:

            If the trustee transfers trust property to a third person
            or creates a legal or equitable interest in the subject
            matter of the trust in a third person, and the trustee in
            making the transfer or in creating the interest does not
            commit a breach of trust, the third person holds the
            interest so transferred or created free of the trust, and
            is under no liability to the beneficiary.

     5
       Although the Second Restatement uses the term “bona fide
purchaser,” the term also applies when the trustee “creates a legal
interest” in trust property, § 284(1), such as by giving “a legal mortgage
or pledge or legal lien upon the trust property,” id. § 284 cmt. g. In other
words, a lender’s security interest may be protected by the bona fide
purchaser defense, even if the trustee breached its fiduciary duty by
granting the interest.
         G.W. PALMER & CO. V. AGRICAP FINANCIAL                           43

or any proceeds derived from it, id. § 291(1). 6 A trustee may
breach its fiduciary duties by failing to “exercise caution . . .
care and skill in deciding whether and under what terms to
borrow money for trust purposes or to grant a security
interest in trust property,” Restatement (Third) of Trusts
§ 86 cmt. d, or by acting in a similarly careless manner when
selling trust property, id. § 86 cmts. b, c. Therefore, a trustee
breaches its fiduciary duty if it enters into an agreement with
a third party that is not commercially reasonable. See
Boulder Fruit, 251 F.3d at 1271–72. 7



    6
       Equity recognizes some exceptions to this rule. A third party that
has conferred a benefit on the trust estate may be entitled to
reimbursement from trust assets. See, e.g., Restatement (Second) of
Trusts § 291 cmt. o (“If the trustee in breach of trust transfers trust
property to a person who takes with notice of the breach of trust and who
pays value for the trust property, and the beneficiary compels him to
restore the property to the trust or to account for its value or for the
proceeds, the transferee is entitled to credit for the amount which he paid
for the trust property to the extent to which the trust estate has the benefit
thereof.”); id. § 269 (“A person who has conferred a benefit on the trust
estate and cannot obtain satisfaction of his claim out of the trustee's
individual property can by a proceeding in equity reach trust property
and apply it to the satisfaction of his claim to the extent to which the trust
estate has been benefited, unless under the circumstances it is inequitable
to allow him such remedy.”); see also Thomas v. Provident Life & Tr.
Co., 138 F. 348, 349 (9th Cir. 1905) (holding that even if the trustee
granted a lender a mortgage on trust property in breach of the trust, the
trust estate “having received the benefit of the money, ought, in equity,
to repay it, with interest.”).

     7
       The breaching trustee is also liable to the beneficiaries. “[I]f the
trustee wrongfully uses trust money in his own business, or if he lends
trust money to himself, the beneficiary can impose a constructive trust
or equitable lien upon the proceeds if he can trace them.” Restatement
(Second) of Trusts § 202 cmt. e.
44       G.W. PALMER & CO. V. AGRICAP FINANCIAL

    Nothing in PACA alters these basic trust principles. A
PACA trustee, like any other trustee, has authority to sell
trust assets or borrow money secured by an interest in trust
property. See Preamble to Regulations Under the Perishable
Agricultural Commodities Act, 49 Fed. Reg. 45,735, 45,738
(Nov. 20, 1984) (codified at 7 C.F.R. pt. 46) (stating that “the
regulations do not prohibit a buyer or receiver from granting
a secured interest in trust assets”); see also Nickey Gregory,
597 F.3d at 600 (holding that PACA permits the PACA
trustee to transfer accounts receivable to a lender “as
collateral for a secured loan”). And like any trustee, a
PACA trustee is liable if it breaches its fiduciary duty. The
Department’s regulations require the distributor-trustee to
maintain trust assets “to satisfy outstanding obligations to
sellers of perishable agricultural commodities” and prohibit
“[a]ny act or omission which is inconsistent with this
responsibility, including dissipation of trust assets.”
7 C.F.R. § 46.46(d)(1). 8

                                   B

    The facts in this case must be understood in light of these
principles. Tanimura Distributing, Inc. (TDI) was in the
business of distributing produce. TDI bought produce on
credit from numerous growers, including the plaintiffs in this
action (collectively, “Palmer”). TDI then resold this produce
to retail outlets, usually on credit. Under a Factoring
Agreement, TDI gave Agricap Financial Corp. an interest in




     8
       Dissipation is defined as “any act or failure to act which could
result in the diversion of trust assets or which could prejudice or impair
the ability of unpaid suppliers, sellers, or agents to recover money owed
in connection with produce transactions.” 7 C.F.R. § 46.46(a)(2).
         G.W. PALMER & CO. V. AGRICAP FINANCIAL                       45

the retailers’ IOUs (i.e., TDI’s accounts receivable) in
exchange for the cash TDI needed to pay its growers.

    These relationships are easier to understand by using a
hypothetical example. Let’s say Palmer sells four bushels of
tomatoes to TDI for $100 on credit. Per PACA, TDI holds
the bushels in trust. See 7 U.S.C. § 499e(c)(2). TDI (as
trustee) then sells the four bushels to Safeway for $200, and
takes back an IOU, which is an asset of the trust. Under the
Factoring Agreement, TDI assigns the $200 Safeway IOU to
AgriCap as the “absolute owner.” In exchange, AgriCap
promptly pays TDI 80 percent of the face value of the $200
account receivable, $160. This $160 becomes an asset of the
trust, held by TDI for the benefit of Palmer and other
growers who sell to TDI on credit. After AgriCap collects
the $200 from Safeway, it pays TDI the remaining
20 percent of the face value of the account receivable, less a
3 percent finance fee. 9 This payment becomes part of the
trust corpus. Assuming Safeway paid on time, AgriCap
would pay $34 to TDI, for a total payment of $194 for the
benefit of the trust.

    The Factoring Agreement provided AgriCap some
protections in exchange for taking the risk that the
receivables would not be collectible. Among other things,
AgriCap could require TDI to repurchase accounts
receivable in certain circumstances, primarily if TDI had
made an error in calculating the amount of produce sold to

    9
       Under the terms of the Agreement, AgriCap’s fees were only
1.5 percent, meaning that TDI would get 98.5 percent of the face value
of each account receivable. In practice, AgriCap asserts that it paid TDI
on average 97 percent of the receivable’s value, and Palmer does not
contend otherwise. Earlier in this litigation, AgriCap stated that it paid
98.2 percent on average. The district court did not make a finding on the
actual amount paid, but estimated that it was “likely in the 90% range.”
46     G.W. PALMER & CO. V. AGRICAP FINANCIAL

Safeway, and the Agreement required TDI to take back
accounts receivable that were uncollectible after 90 days.
However, AgriCap assumed the risk of loss in the event that
Safeway became insolvent.

     In sum, TDI received an 80 percent advance on the value
of its accounts receivable and would receive up to 97 percent
of their face value. Because PACA creates a nonsegregated
floating trust, TDI was statutorily authorized to use the
money it received from AgriCap to pay all the growers,
including Palmer, and with the 80 percent advance on each
account receivable, was able to do so with increased speed.

    Although the Factoring Agreement states that TDI sold
the accounts receivable to AgriCap, it is possible, as the
majority suggests, to characterize the transaction as a loan.
Maj. Op. at 12. If the arrangement is viewed as a loan, TDI,
acting as a trustee, has borrowed $160 from AgriCap for the
benefit of all the growers (the beneficiaries), and assigned
the $200 Safeway account receivable to AgriCap as security
for the loan. A lender taking only a security interest in an
account receivable would typically not have any ability to
collect the account receivable (unless the borrower
defaulted). But the Factoring Agreement provides that once
the $200 account receivable is assigned to AgriCap, it is the
sole entity authorized to collect it. Therefore, to maintain
the recharacterization of this transaction as a loan, we must
view TDI as authorizing AgriCap to act as its collection
agency, in addition to AgriCap’s role as secured lender. See
Nickey Gregory, 597 F.3d at 603 (explaining, in the context
of a similar agreement, that if the third party was “not a
purchaser of the accounts receivable,” then it was “a lender
and collection agent”). As TDI’s agent, AgriCap collects the
$200 that Safeway owed TDI. Those funds are used to pay
back the $160 loan to AgriCap, plus a $6 finance fee, leaving
         G.W. PALMER & CO. V. AGRICAP FINANCIAL                    47

an additional $34 for the benefit of the growers (thus
obtaining a grand total of $194 cash from the sale of the four
bushels of tomatoes to Safeway).

    This relationship—however characterized—broke down
in August 2008, when TDI failed to pay Palmer amounts
owed for its produce. After Palmer sued TDI, the distributor
filed for Chapter 7 bankruptcy protection. In re Tanimura
Distrib., Inc., No. 2:08-bk-22644-TD (Bankr. C.D. Cal.
Aug. 13, 2008), ECF No. 1.

    When it declared bankruptcy, TDI owed Palmer roughly
$845,000. 10 Absent PACA, Palmer would have been an
unsecured creditor. Instead, the assets of the PACA trust
were available for distribution to Palmer, and TDI’s secured
creditors could not touch them. The administrator of TDI’s
bankruptcy estate thus went about “identifying, recovering,
and liquidating the PACA trust assets of [TDI] and
preserving those funds for the benefit of all PACA trust
creditors.” Stipulation for Order Establishing PACA Trust
Claims Procedure and Surcharge for Administrative
Expenses at 11, In re Tanimura Distrib., Inc., No. 2:08-bk-
22644-TD, (Bankr. C.D. Cal. Jan. 26, 2009), ECF No. 60
(approved by bankruptcy court, ECF No. 67). 11

    After TDI’s bankruptcy filing, Palmer added AgriCap to
its complaint in this case, alleging that TDI’s accounts
receivable were PACA trust assets and AgriCap should

    10
      In its initial complaint, Palmer sought to recover approximately
$882,000 in unpaid debts from produce sales, but now seeks only
$845,000.
    11
       TDI’s bankruptcy estate has now been fully distributed. See
Chapter 7 Trustee’s Final Account, In re Tanimura Distrib., Inc., No.
2:08-bk-22644-TD, (Bankr. C.D. Cal. Aug. 7, 2014), ECF No. 262.
48     G.W. PALMER & CO. V. AGRICAP FINANCIAL

return them to Palmer. In its motion for summary judgment,
Palmer argued that TDI breached its fiduciary duty by
granting AgriCap a security interest in accounts receivable
from the sale of Palmer’s produce and by transferring those
accounts receivable to AgriCap. Further, Palmer claimed,
AgriCap knew TDI was in breach of trust and is therefore
liable to Palmer for the value of the accounts receivable that
TDI transferred to AgriCap. In effect, Palmer’s summary
judgment motion claims that because TDI did not pay
Palmer the $160 it initially borrowed from AgriCap,
AgriCap has to make good on TDI’s obligation.

                              II

    Under trust law, AgriCap’s potential liability primarily
turns on whether the TDI breached its fiduciary duty. As
explained above, if TDI breached its fiduciary duty to
Palmer and the growers by entering into the Factoring
Agreement or by performing its obligations under the
Factoring Agreement, and AgriCap was on notice of the
breach, AgriCap would hold any security interest in the trust
assets or any proceeds derived from those assets, in a
constructive trust for the benefit of the growers.

    Because a PACA trustee can give a lender a security
interest in trust assets, TDI did not breach its fiduciary duty
to the growers merely by entering into the Factoring
Agreement. The parties do not argue that the Factoring
Agreement is commercially unreasonable; indeed, there
would be no basis for doing so. In our example, TDI as
trustee would get $194, or 97 percent of the $200 account
receivable. This far exceeds the 80 percent return that we
have approved in the sale of assets. See Boulder Fruit,
251 F.3d at 1272 (“[A] factoring discount of 20% was never
shown to be commercially unreasonable”). And, in the loan
scenario, AgriCap is merely acting as a collection agent, and
         G.W. PALMER & CO. V. AGRICAP FINANCIAL                  49

it would not be commercially unreasonable for a creditor to
agree that its collection agent can return accounts receivable
that are uncollectible. Moreover, if TDI takes back the $200
uncollectible account receivable, TDI is no worse off than it
was before it authorized AgriCap to collect the account
receivable; TDI retains the asset, which has the same value
before and after its transaction with AgriCap. After entering
into the Factoring Agreement, TDI as trustee was bound by
its terms (assuming AgriCap did not breach the agreement).
If entering into the Factoring Agreement did not breach
TDI’s fiduciary duties, then neither did complying with its
terms. See Restatement (Third) of Trusts § 88 cmt. b
(explaining that “if a trustee borrows funds from a third party
for use in the administration of the trust, the interest on the
loan is payable (or reimbursable) from the trust estate,” so
long as the terms are “reasonable and the borrowing serves
an appropriate trust purpose and is otherwise consistent with
the trustee’s fiduciary duties”); Austin W. Scott et. al., Scott
and Ascher on Trusts § 26.2 (5th ed. 2007) (noting that the
trust estate remains liable for performing a contract entered
into by the trustee, even when the contract “is not in all
respects proper”). Indeed, no party argues that the Factoring
Agreement is commercially unreasonable because it does
not include a term that would allow TDI to delay making
required loan payments until after all growers who provide
produce to TDI have been fully paid. 12

   In short, TDI did not breach its fiduciary duties as trustee
when it entered into an agreement under which it received
an 80 percent advance on each account receivable in
exchange for repaying the advance plus a fee of 3 percent.

    12
       As indicated below, infra at p. 54, because PACA is a non-
segregated floating trust, such a term would likely prevent TDI from
every repaying a lender.
50        G.W. PALMER & CO. V. AGRICAP FINANCIAL

Nor did TDI breach its fiduciary duties by complying with
the terms of this agreement, which required TDI to repay the
money borrowed from AgriCap. Therefore, AgriCap holds
its interest in the accounts receivable and loan payments free
of the trust. See Restatement (Second) of Trusts § 283.
Under principles applicable to all trusts, including PACA
trusts, AgriCap has no liability to Palmer or any other
grower.

                                  III

    The majority agrees that basic trust principles apply to
PACA trusts. Maj. Op. at 15. It also agrees that trust assets
are excluded from the distributor’s bankruptcy estate if the
distributor goes bankrupt. Maj. Op. at 15. It agrees that if a
trustee “transfers trust property to a third person . . .
[without] commit[ting] a breach of trust, the third person
holds the interest so transferred or created free of the trust,
and is under no liability to the beneficiary.” Maj. Op. at 16
(quoting Restatement (Second) of Trusts § 283). Finally, the
majority agrees that a trustee can give a lender a security
interest in PACA trust assets without violating PACA. Maj.
Op. at 32–33.

    So how does the majority nonetheless reach the striking
conclusion that if the Factoring Agreement is deemed to be
a loan transaction, then AgriCap, which paid TDI $194 for a
$200 trust asset, is liable to Palmer for the same $200? 13 See
Maj. Op. at 27–28. The majority reasons that under a loan

     13
        If described as a loan, this means that after TDI borrowed $194
and subsequently repaid the $194 loan (plus fees) to AgriCap, AgriCap
must return the $194 plus fees to TDI, with no prospect of ever getting
its loan repaid.
         G.W. PALMER & CO. V. AGRICAP FINANCIAL                        51

scenario, even if TDI did not breach its fiduciary duties by
entering into a loan agreement, it breached them by
complying with the terms of the loan agreement and repaying
AgriCap’s loan. According to the majority’s analysis,
because TDI repaid AgriCap’s loan before Palmer was paid
(regardless whether TDI used AgriCap’s loan to pay other
growers), AgriCap must make Palmer whole. 14 Maj. Op. at
33. As explained below, this conclusion is not based in
PACA or trust law, is contrary to our precedent, and cannot
reasonably be applied to these transactions.

    In reaching its conclusion that a trustee would breach its
fiduciary duty by repaying the loan from trust assets “while
the trust beneficiaries have not been fully compensated,”
Maj. Op. at 32, the majority relies on Nickey Gregory Co. v.
AgriCap, LLC, which analyzed a similar agreement between
AgriCap and a PACA trustee. See 597 F.3d at 596, 601–02.
The Fourth Circuit reasoned that the trustee’s arrangement
with AgriCap “authorized trust assets to be used to repay
AgriCap ahead of the commodities sellers, who went
unpaid,” and such an arrangement “breached the PACA

    14
        More precisely, the majority states that a trustee breaches its
fiduciary duties “whenever the lender recovers its fee or percentage from
the accounts receivable while the trust beneficiaries have not been fully
compensated.” Maj. Op. at 32. It is not clear whether the majority deems
the breach to be limited to a trustee’s payment of interest to a lender, or
deems the trustee’s repayment of principal to the lender to also be a
breach of trust. Nor does the majority make clear whether a lender must
return only the interest it received on the loan or must also return the
repayment of principal. Nevertheless, the majority’s adoption of this
analysis indicates that the majority assumes the lender must return both
interest and principal to the trustee. See Nickey Gregory, 597 F.3d at
606–07 (rejecting AgriCap’s alternative argument that it should be
required to disgorge only “the amount it received in interest and fees”
and instead requiring it to disgorge all collections on receivables up to
the amount of growers’ claims).
52     G.W. PALMER & CO. V. AGRICAP FINANCIAL

trust,” because the trustee “was obligated to ensure that trust
assets remained freely available to pay PACA creditors
first.” Id. at 604. Accordingly, the Fourth Circuit concluded
that “AgriCap, as a third-party transferee of the trust assets,
must, under established trust principles, disgorge the
proceeds of the receivables unless it has a defense.” Id.

    The majority adopts this reasoning. While conceding
that this result has no basis in trust principles, Maj. Op. at
31, the majority contends that this result is required by
PACA, and quotes the regulation stating that PACA trustees
“are required to maintain trust assets in a manner that such
assets are freely available to satisfy outstanding obligations
to sellers of perishable agricultural commodities,” and this
precludes a trustee from repaying a loan to the trust. Maj.
Op. at 32 (quoting 7 C.F.R. § 46.46(d)(1)).

     The majority’s analysis, like that in Nickey Gregory, is
critically flawed. First, the majority misunderstands the
nature of trust assets. In the case of a loan, the trustee
maintains two assets available for the growers: the $194 that
the trustee received from the lender ($160 as an advance, $34
post-collection), and the accounts receivable subject to the
lender’s $160 lien. The trustee’s repayment of the $160 to
the lender does not dissipate the trust’s assets, because the
trust is not entitled to that $160 under the terms of the loan
agreement. The typical produce sales arrangement seems
more questionable under the majority’s reasoning, because
TDI relinquished the produce (an asset of the estate that is
no longer freely available to the growers) to Safeway, and
received only a promise to pay in return. Of course,
Congress did not intend to preclude this sort of arrangement.

    Second, the majority misunderstands the nature of a
trustee’s obligation in a loan agreement. Just like any trustee
who takes out a loan for the benefit of the beneficiaries and
         G.W. PALMER & CO. V. AGRICAP FINANCIAL                        53

uses trust assets as collateral, the PACA trustee must repay
the loan according to the terms of the loan agreement, and
the secured lender’s lien on those trust assets remains
enforceable if the loan is not repaid. 15 Failure to pay the loan
according to its terms would constitute a breach of the
trustee’s fiduciary duties. See Scott et al., supra, § 17.8 (“A
trustee of property subject to a mortgage must take
reasonable steps to prevent loss of the property by
foreclosure.”). The majority cites nothing in PACA that

    15
       At oral argument, AgriCap’s counsel stated that the trust estate
no longer contains any uncollected accounts receivable subject to a
security interest, and so such accounts receivable are not at issue in this
appeal. U.S. Court of Appeals for the Ninth Circuit Court, Oral
Argument 14-56059 G.W. Palmer & Co. v. AgriCap Fin. Corp.,
YOUTUBE 28:30–28:50 (Sept. 20, 2017), https://www.youtube.com/
watch?v=iikaXV7nkaw.

      But were the issue before us, basic principles of trust law establish
that AgriCap would have the same rights with respect to those accounts
receivables as it would to the proceeds. If TDI, as trustee, did not breach
its fiduciary duties when it borrowed money from AgriCap (or AgriCap
did not have knowledge of the breach), and the trustee still owed
AgriCap money on the loan, then AgriCap would be entitled to foreclose
its security interest on the accounts receivable according to the terms of
the loan agreement. See Restatement (Second) of Trusts §§ 283–84, 288
(explaining that a third-party lender holds its security interest in trust
property free of the trust unless the grant of the interest was a breach of
the trustee’s fiduciary duty, the lender had notice, and the lender did not
give value).

     While AgriCap’s counsel stated in response to questioning that a
lender’s interest in the accounts receivable would be subordinate to the
growers’ interests as beneficiaries, Maj. Op. at 33 n.11, we do not
construe statutes based on passing statements at oral argument. Roberts
v. Galen of Va., Inc., 525 U.S. 249, 253 (1999) (per curiam) (“[T]he
concession of a point on appeal by [a party] is by no means dispositive
of a legal issue.”). Here, the growers’ interests would be superior only
to creditors of TDI as a debtor, not to creditors of TDI as trustee.
54      G.W. PALMER & CO. V. AGRICAP FINANCIAL

allows the trustee to disregard such an obligation, and we
“do not construe statutes in a manner that would lead to
absurd results,” nor “impute to Congress an intent to create
a law that produces an unreasonable result.” United States v.
Casasola, 670 F.3d 1023, 1029 (9th Cir. 2012).

    Indeed, the majority’s theory of breach—that the trustee
cannot repay a loan to the trust until all beneficiaries have
been paid—would likely preclude a trustee from borrowing
money secured by trust assets. Because PACA is a non-
segregated floating trust, 7 C.F.R. § 46.46(b), each grower
has a claim on the trust assets, whether they were acquired
before or after the grower sold its produce to the trustee. See
In re Kornblum & Co., Inc., 81 F.3d 280, 286 (2d Cir. 1996)
(holding that “a single PACA trust exists for the benefit of
all of the sellers to a Produce Debtor, and continues in
existence until all of the outstanding beneficiaries have been
paid in full.”). So long as the trustee continues to purchase
produce from growers on credit, there will be new growers
who have not yet been paid and therefore the trustee would
be precluded from repaying any lender from the trust assets.
No lender would enter into a loan agreement if the law
precluded repayment of the loan.

    Perhaps realizing that there is no statutory basis for
holding that a PACA trustee cannot repay a lender pursuant
to the terms of the loan agreement, the majority posits that if
a PACA trustee borrows from a lender, and secures the loan
with an interest in trust property, the beneficiaries have a
priority lien on the trust property over all other lenders. Maj.
Op. at 27–28. The majority analogizes to circumstances
where state law protects a creditor by giving that creditor a
priority lien over all other creditors. Maj. Op. at 27–31.

    This framework, however, is divorced from the language
of PACA and basic principles of trust law. Congress could
         G.W. PALMER & CO. V. AGRICAP FINANCIAL                          55

well have provided that when a distributor purchases a
grower’s produce on credit, the grower would be deemed, by
operation of law, to have a lien on that produce (and its
proceeds) that has priority over the liens of all other
creditors. But, there is nothing to this effect in PACA.
Rather, Congress elected to rely on a trust mechanism, and
to protect growers by making the distributor a trustee
holding their proceeds in trust. See 7 U.S.C. § 499e(c)(2).
A beneficiary of a trust does not have any lien on trust assets,
let alone a priority lien. 16

    Although the majority purports to follow the lead of
three other circuits, only the Fourth Circuit has adopted the
theory that a trustee’s loan repayments in the ordinary course
of business are a breach of trust. In Reaves Brokerage Co.
v. Sunbelt Fruit & Vegetable Co., 336 F.3d 410, 413–14
(5th Cir. 2003), and Endico Potatoes, Inc. v. CIT
Group/Factoring, Inc., 67 F.3d 1063, 1067–68 (2d Cir.
1995), the courts analyzed whether a transaction between a
PACA trustee and a third party constituted a loan or “true
sale” in order to determine whether the transferee was a bona
fide purchaser under section 284 of the Restatement

      16
         Although the Department of Agriculture stated in the preamble to
its regulations that a lender that takes a secured interest in a PACA trust
asset takes “a secured interest [that] is secondary and specifically
voidable in order to satisfy debts to unpaid suppliers, sellers, or agents in
perishable agricultural commodity transactions,” Preamble to
Regulations Under the Perishable Agricultural Commodities Act,
49 Fed. Reg. at 45,738, this language is contrary to the language of the
statute and the regulations themselves, and so merits no weight, see
Mines v. Sullivan, 981 F.2d 1068, 1070 (9th Cir. 1992) (“A court need
not accept an agency’s interpretation of its own regulations if that
interpretation is inconsistent with the wording of the regulation or
inconsistent with the statute under which the regulations were
promulgated.”).
56        G.W. PALMER & CO. V. AGRICAP FINANCIAL

(Second) of Trusts. 17 Since section 284 applies only if the
trustee breaches its fiduciary duty, see supra p. 42; Boulder
Fruit, 251 F.3d at 1272 (“Whether a transferee of trust assets
is a bona fide purchaser becomes relevant only as a defense
after it has been determined that a breach of trust has
occurred.”), those courts necessarily presumed that a breach
had occurred, but did not explain their theory. 18 None
suggested that the trustee’s repayment of a loan according to
its terms constituted a breach of the trustee’s fiduciary duty.

    Moreover, the Second Circuit has recognized, consistent
with Boulder Fruit, “that it is not a breach of trust for a
PACA dealer to use PACA funds to enter into ‘commercially
reasonable’ transactions with parties not protected by
PACA, particularly where such transactions facilitate a
PACA dealer’s fulfillment of his obligations to PACA
beneficiaries.” E. Armata, Inc. v. Korea Commercial Bank
of N.Y., 367 F.3d 123, 133 (2d Cir. 2004); see also D.M.
Rothman & Co. v. Korea Commercial Bank of N.Y., 411 F.3d
90, 96 (2d Cir. 2005) (holding that a third-party bank was
not liable for its receipt of a PACA trustee’s account fees,
interest, and any other funds whose “retention was
commercially reasonable”).


     17
        As explained above, the bona fide purchaser defense applies
equally to a lender’s security interest in trust assets or the purchase of
trust assets. See supra p. 42 n.5; Restatement (Second) of Trusts § 284
& cmt. g.

     18
        The majority also cites A & J Produce Corp. v. Bronx Overall
Economic Development Corp., which relied on Reaves and Endico
Potatoes for the proposition that a lender is not a bona fide purchaser for
value, but likewise failed to identify any breach by the trustee. 542 F.3d
54, 58–59 (2d Cir. 2008).
        G.W. PALMER & CO. V. AGRICAP FINANCIAL                  57

    Nor does the majority explain how its analytic
framework applies to the facts in this case. If the Factoring
Agreement is in fact a loan agreement, then AgriCap loaned
TDI between $19,057,000 and $20,425,000 for many
different accounts receivable, and TDI ultimately paid back
(through AgriCap’s collections on the accounts receivable)
some amount up to the loan amount plus a finance fee for
each of those accounts receivable. 19 Although the majority
indicates that AgriCap is liable to Palmer for some portion
of the money AgriCap received in repayment of its $19–20
million in loans, the majority gives no direction to the district
court on how to determine the extent to which AgriCap is
liable. To the extent the majority’s reasoning would require
AgriCap to repay principal and interest on its loan, the
majority effectively makes the factor the trustee’s guarantor,
who must make the beneficiaries whole if the trustee does
not do so. But it is already settled that “third parties are not
guarantors of the PACA trust.” Boulder Fruit, 251 F.3d at
1272; Consumers Produce Co. v. Volante Wholesale
Produce, Inc., 16 F.3d 1374, 1381 (3d Cir. 1994) (“The
produce purchaser is the trustee of the trust and creditors are
not insurers of unpaid beneficiaries when they receive trust
assets in breach of trust.”); C.H. Robinson Co. v. Tr. Co.
Bank, N.A., 952 F.2d 1311, 1316 (11th Cir. 1992) (“Secured
lenders are not guarantors of PACA trusts.”).

    At bottom, the majority’s concern appears to be that trust
principles are insufficiently protective of growers here. But
the majority offers no principled distinction for why a trustee
can sell produce for cash, sell an account receivable for cash,
but not borrow cash secured by the produce or account
receivable, even though the trustee gets substantially the

   19
      The parties dispute the amounts AgriCap loaned to TDI and the
amounts that TDI repaid AgriCap.
58     G.W. PALMER & CO. V. AGRICAP FINANCIAL

same amount of cash for the benefit of the growers in each
transaction. More fundamentally, the majority’s discussion
of PACA’s purpose seems to conflate lenders-to-the-
distributor with lenders-to-the-trustee. Lenders to the
distributor cannot reach PACA assets in bankruptcy because
TDI holds those assets in trust for the growers. See Sunkist
Growers, 104 F.3d at 282. But when we deal with secured
lenders to the trust, the loan advance and subsequent
payments become trust property, and it is fully consistent
with PACA’s purpose to look at whether the trust got a fair
(i.e., commercially reasonable) deal.

     Once we discard the majority’s theory of breach, its
discussion of the test for a “true sale” becomes irrelevant.
Maj. Op. at 26–27. In the trust context, the key question is
not whether the trustee is engaged in a sale or loan, but
whether the trustee breached its fiduciary duty in entering
into the loan agreement (and complying with it according to
its terms). The answer to that question turns primarily on the
commercial reasonableness of the individual transaction and
its terms.

                             IV

    By enacting PACA, Congress provided significant
protection to growers by ensuring that a distributor who buys
their produce on credit owes the growers a fiduciary duty to
manage the trust assets (the produce and its proceeds) for
their benefit. Contrary to the majority’s assertion, this
protection does not entitle growers to disregard obligations
undertaken by the trustee on their behalf. If the trustee
borrows money for the benefit of the beneficiaries in a
commercially reasonable transaction, the lender is entitled to
be paid back from trust assets. Under trust principles and
PACA, there is an exception to this rule only if the trustee
breached its fiduciary duties when it entered into the loan
        G.W. PALMER & CO. V. AGRICAP FINANCIAL               59

arrangement, and the lender was on notice of this breach. In
this context, there is no need to distinguish between “true
sales” and “loans.” In other words, we had it right in Boulder
Fruit: we look at the commercial reasonableness of the
agreement to determine whether it was a breach of trust,
regardless whether the agreement is a sale or a loan.
Recourse provisions and other features that “transfer risk”
may be relevant to this analysis. But unless the transaction
is commercially unreasonable or otherwise a breach of the
trustee’s fiduciary duty, there is no basis under PACA or
trust law for depriving the lender of its right to repayment
under the loan agreement or, as in this case, requiring a
lender that has loaned money to the trust and been repaid by
the borrower to return the borrower’s repayment.

      The majority’s approach is inconsistent with PACA, and
that should be enough to reject it. “[W]e will not presume
with [appellants] that any result consistent with their account
of the statute's overarching goal must be the law but will
presume more modestly instead ‘that [the] legislature says
. . . what it means and means . . . what it says.’” Henson v.
Santander Consumer USA Inc., 137 S. Ct. 1718, 1725 (2017)
(third, fourth, and fifth alterations in original) (quoting Dodd
v. United States, 545 U.S. 353, 357 (2005)).

    But the majority’s approach also makes no sense as a
practical matter. Under the majority’s decision, a transaction
in which the trustee made a commercially reasonable sale of
a $200 account receivable to AgriCap and received $150 in
return would not constitute a dissipation of trust assets, and
AgriCap could keep the $200 it collected on the account
receivable from the retailer. But a transaction in which the
trustee received a $200 loan from AgriCap (secured by a
security interest in the same $200 account receivable) and
agreed to pay back the loan when it collected the $200 from
60        G.W. PALMER & CO. V. AGRICAP FINANCIAL

the retailer, would constitute a dissipation of assets if the
trustee paid back the loan. 20 By imposing these drastically
divergent outcomes based on the loan-sale distinction, the
majority fails to heed its own advice that “courts must focus
on the true substance of PACA-related transactions and not
on artificial indicators or labels.” Maj. Op. at 25.

    Moreover, the majority’s approach will hurt PACA
beneficiaries in the long run. If lenders face the prospect that
any repayments they receive will be a breach of trust and
subject to disgorgement, they will either refuse to engage in
factoring transactions or impose more severe terms to
account for the heightened risk. 21


    20
        As explained above, supra p. 54, the distributor-trustees
constantly generate new outstanding obligations to growers in the
ordinary course of business, meaning that in practical terms, any
repayment could be a breach under the majority’s theory.

     21
       “[I]n desperation,” the majority attempts to distract attention from
the necessary implications of its own logic by pointing to policy issues,
passing statements in oral argument, and its reliance on the Fourth
Circuit’s similar errors. Maj. Op. at 33 n.11. Instead of reasoning and
analysis, the majority offers only conclusory statements. For instance,
the majority states “nowhere do we suggest that trusts are free to
disregard their obligations to lenders.” But this is contrary to the
majority’s own reasoning, that “whenever a loan is made, a PACA
trustee must be careful to ensure all trust beneficiaries are paid before
the lender collects.” Maj. Op. at 33. Said otherwise, a trustee cannot
repay the lender according to the terms of the loan. Or at all—as
explained above, supra p. 54, given the nature of a floating, non-
segregated trust, some trust beneficiaries will be unpaid at any given
time.

    Similarly, the majority argues we should not consider the
consequences of its theory of breach, because it remands to the district
court for a determination of damages. Maj. Op. at 33 n.11. But it
         G.W. PALMER & CO. V. AGRICAP FINANCIAL                          61

    I respectfully dissent.




requires no “interested speculation and conjecture” to conclude that, if
the Factoring Agreement is deemed to be a loan, AgriCap would have to
return all loan payments it received, up to the value of TDI’s debts to
Palmer. See Nickey Gregory, 597 F.3d at 607 n.2 (“As we have noted,
because the accounts receivable and their proceeds were trust assets, the
unpaid commodities sellers have a prior interest in them and can recover
from AgriCap to the full satisfaction of their debts up to the limit of trust
assets held while they remained unpaid.”).
