Opinion ID: 6498774
Heading Depth: 2
Heading Rank: 3

Heading: C, supra.

Text: Second, the majority says that the complaint “alleges facts that resemble a consignment transaction.” (Emphasis added.) In addition to discussing the parties’ payment terms, the majority notes that Produce Pay “alleges that it sold approximately 20 tons of avocados to Izguerra through its online platform for Izguerra ‘to sell on consignment.’” At the threshold, we acknowledged in Tanimura that the transaction before us there had “features both of a sale and of a loan,” remanding to the district court to apply the transfer-of-risk test in the first instance and decide which characterization made more sense. 883 F.3d at 813. Consequently, the question is not whether the transaction here “resemble[s]” a consignment sale in some respects, but rather whether its sale-like features or its loan-like features predominate. Tanimura specifically instructs that the “labels” the parties put on a transaction are not determinative. 4 Id. As a result, the fact that the parties’ agreement calls the transaction a consignment sale, and the fact that Produce Pay is referred to as “a bona fide purchaser,” are of no moment. Finally, relying on facts taken from a law review article and un-pleaded assertions by amici, the majority says that it is important to move agricultural commodities quickly due to the perishable nature of the goods, and concludes that the fact that Produce Pay never had physical possession of the avocados is of minimal relevance. What the majority leaves 4 But to the extent that labels do matter, it is worth noting that even though Produce Pay calls the overall transaction a consignment sale, the parties’ contract also twice describes Produce Pay’s services as “alternative financing.” 34 PRODUCE PAY V. IZGUERRA PRODUCE unexplained is how Produce Pay could be a “seller” of goods that it never possessed at any point in the transaction and only took legal title to after possession had passed to the purported buyer, Izguerra. The Sixth Circuit’s unpublished decision in In re Spiech Farms, LLC, 840 F. App’x 861 (6th Cir. 2021), which involved another loan by Produce Pay that was structured to look like a sale, is instructive on this point. Contrary to the majority’s assertions, the transaction in Speich was remarkably similar to the transaction here. In Spiech—which was a bankruptcy case—the debtor listed produce for “sale” on Produce Pay’s online platform, after which Produce Pay could “buy” the produce for half its value and assume legal ownership of it. Id. at 864. In reality, this was a short-term loan rather than a purchase, as the debtor had already delivered the produce to its customers by the time it notified Produce Pay that the produce was “for sale.” Id. The “expectation” was that the debtor would repay Produce Pay after it received payments from its customers, but, as in this case, the debtor had to repay Produce Pay regardless, reducing its own profits as necessary. Id. The Sixth Circuit held that this arrangement was a loan because Produce Pay had in effect shifted all the risk of the transaction to the debtor, see id. at 866–87, and because Produce Pay could not have sold something that it never really owned, see id. at 866. As in this case, Produce Pay never took possession of the produce and only learned which goods had been sold after the buyer—i.e., the debtor’s customers in Spiech, and Izguerra here—notified Produce Pay of a delivery in the online platform. See id. Consequently, Produce Pay could not have been the true seller or supplier of the produce. Id. (citing Uniform Commercial Code § 204-1(1), (3)). So, too, here: “the PRODUCE PAY V. IZGUERRA PRODUCE 35 Agreement did not explicitly identify what produce would be sold, and Produce Pay only learned what produce was ‘for sale’ after it was registered on its platform;” “by the time Produce Pay ‘bought’ the produce [to ‘sell’ to Izguerra], it was already delivered to [Izguerra];” and “Produce Pay did not receive a document of title until it was too late—after [Izguerra] possessed the produce.” Id. In both cases, Produce Pay never bore any real risk for the produce, either before or after it changed hands. The majority’s efforts to distinguish Speich factually are unpersuasive. For example, the majority avers that, unlike in the Speich transaction, there is nothing here that “could be construed as interest, rather than as a late payment penalty.” To start, this creates a false dichotomy: interest often functions as a late-payment penalty for a loan (interest on credit-card debt is a classic example). More to the point, Produce Pay’s complaint expressly alleges that Izguerra was on the hook for “interest . . . at the rate of 1.5% per month (18% per annum), or the maximum rate allowable under applicable law, until such time as full payment is received” on any “past-due” amounts. This portion of the complaint cites to an attached invoice that states this same interest rate, lists Izguerra as the “[d]ebtor,” and calculates “[a]ccrued [i]nterest” as of the [p]ast [d]ue” date. The majority’s other purported points of distinction fail because they rely on irrelevant differences (for example, that this case involves an agreement with a grower rather than a distributor) and question-begging statements (asserting in a conclusory fashion that Produce Pay was functioning as a lender in Speich, but not here, and that the transactions are “clearly different”). One final observation about Speich is in order. Whatever else can be said about the transaction at issue in that case, it 36 PRODUCE PAY V. IZGUERRA PRODUCE was not a factoring transaction, and the majority does not claim that it was. And while the majority accuses me of trying to “pound a square peg into a round hole” by applying Tanimura’s transfer-of-risk test to a non-factoring transaction, the Sixth Circuit did precisely that in Speich. See 840 Fed. App’x at 867 (citing, inter alia, Tanimura, 883 F.3d at 808). In fact, it expressly rejected a similar argument to narrow the scope of Tanimura and similar decisions by our sister circuits, observing that in all these cases, the ultimate purpose of the transfer-of-risk test was “to resolve the parties’ contentions regarding their contractual relationship.” Id. at 867 n.2. As in Speich, “Produce Pay does not convincingly explain why [we] should abstain from engaging in such analysis” here. Id.