Annual Case Law Update of Agribusiness

• Publication year: 2022
• Author: June Monroe

Annual Case Law Update of Agribusiness

June Monroe

June Monroe is Vice Chair of the Agribusiness Committee and a partner at Rynn & Janowsky, LLP, where she practices agricultural law, PACA trust law, and employment law. She provides services to agribusinesses from formation to operating challenges, and employment practices and defense, as well as produce transactional contracts and litigation with the USDA and in civil courts.

In re Spiech Farms, LLC, 840 F. App'x 861 (6th Cir. 2021) (Factoring company is not a PACA trust creditor).

The Sixth Circuit Court of Appeals agreed with the U.S. Bankruptcy Court for the Western District of Michigan and the U.S. District Court for the Western District of Michigan that factoring company Produce Pay, Inc. ("Produce Pay") did not have a valid claim brought under the Perishable Agricultural Commodities Act ("PACA" or the "Act"), 7 U.S.C. §§ 499e, against debtor Spiech Farms, LLC ("Spiech"). Produce Pay set out to use the Act as a way to secure complete recourse against Spiech's assets, but the court found that Produce Pay neither qualified as a seller or supplier of commodities nor purchased Spiech's accounts receivable, and consequently held that Produce Pay was ineligible for priority creditor relief through its alleged PACA claim.

"Under the Act, when a seller, dealer, or supplier ships produce to a buyer, a statutory trust is created upon acceptance of the commodities."¹ The trust effectively protects commodity sellers and suppliers against harm from financing arrangements entered into by buyers (merchants, dealers, and brokers) who give "security interest[s] in [their] commodities or the receivables or proceeds from the sale of the commodities."² "And thus, under § 499e(c)(2), these sellers and suppliers' rights are superior to those of the buyers' other creditors."³

In 2017, Spiech suffered financially after losing its blueberry crop due to frost. Although Spiech was already indebted to Chemical Bank for $4 million through existing secured loans, Spiech sought assistance from Produce Pay as a "multi-service finance company." Spiech and Produce Pay entered into a "Distribution Agreement" ("Agreement") that allowed Spiech to obtain short-term loans from Produce Pay as a partial advance on payments that Spiech was supposed to receive from its existing customers.

Logistically, Spiech notified Produce Pay that it had a pallet of produce "for sale" by registering that pallet on Produce Pay's on-line platform. Produce Pay...