Court Opinion

ID: 6498774
Source: CourtListenerOpinion
Date Created: 2022-07-08 17:00:37.849568+00
Date Added: 2024-06-11T09:09:54.424503
License: Public Domain

FOR PUBLICATION

    UNITED STATES COURT OF APPEALS
         FOR THE NINTH CIRCUIT

 PRODUCE PAY, INC.,                                 No. 20-56181
                Plaintiff-Appellant,
                                                      D.C. No.
                      v.                           2:19-cv-10165-
                                                     CBM-GJS
 IZGUERRA PRODUCE, INC.; SERGIO B.
 FIERRO; CARLOS F. FIERRO; MARIA
 T. FIERRO; DOES, 1 through 10,                       OPINION
 inclusive,
              Defendants-Appellees.

        Appeal from the United States District Court
            for the Central District of California
       Consuelo B. Marshall, District Judge, Presiding

          Argued and Submitted December 7, 2021
                   Pasadena, California

                           Filed July 8, 2022

     Before: Paul J. Kelly, Jr., * Milan D. Smith, Jr., and
             Danielle J. Forrest, Circuit Judges.

                   Opinion by Judge Kelly;
             Dissent by Judge Milan D. Smith, Jr.

    *
      The Honorable Paul J. Kelly, Jr., United States Circuit Judge for
the U.S. Court of Appeals for the Tenth Circuit, sitting by designation.
2            PRODUCE PAY V. IZGUERRA PRODUCE

                          SUMMARY **

         Perishable Agricultural Commodities Act

   The panel reversed the district court’s Fed. R. Civ. P.
12(b)(6) dismissal of an action brought by Produce Pay, Inc.,
against Izguerra Produce, Inc., under the Perishable
Agricultural Commodities Act and remanded for further
proceedings.

    Produce Pay holds a PACA license issued by the United
States Department of Agriculture. Produce Pay and Izguerra
agreed that Izguerra, through Produce Pay’s online platform,
would receive and accept produce from a grower and sell the
produce to retailers on Produce Pay's behalf. Izguerra
bought 1,600 cartons of avocados from Produce Pay through
its online platform and, pursuant to the parties’ agreement,
received the avocados directly from the Mexican grower.
Produce Pay issued Izguerra an invoice representing the net
proceeds from the avocados, but Izguerra did not fully pay.
The district court dismissed Produce Pay’s PACA claims on
the ground that, as a matter of law, Produce Pay was not a
seller of wholesale produce, and thus not entitled to PACA
protections, because the transaction between Produce Pay
and Izguerra was a secured loan rather than a true sale.

    The panel held that Produce Pay alleged the five
preliminary elements of a PACA claim by alleging that the
avocados were perishable, Izguerra was a dealer of
avocados, the transaction occurred in contemplation of
interstate or foreign commerce, Produce Pay did not receive
    **
       This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
           PRODUCE PAY V. IZGUERRA PRODUCE                  3

full payment, and the invoice for the avocados stated that
they were sold subject to a PACA statutory trust. Further,
Produce Pay plausibly alleged that it was a seller or supplier
under PACA, rather than only a lender, because Produce Pay
alleged facts that resembled a consignment transaction
between it and Izguerra and suggested that Produce Pay
functioned as a seller. The panel distinguished S&H Packing
& Sales Co. v. Tanimura Distributing, Inc., 883 F.3d 797
(9th Cir. 2018) (en banc), which applied a transfer-of-risk
test to an accounts receivable factoring arrangement at the
summary judgment stage, as well as an unpublished decision
of the Sixth Circuit.

    Dissenting, Judge M. Smith wrote that the pleadings as a
whole, including exhibits attached to the complaint and
incorporated by reference, were far more consistent with a
financing arrangement whereby Produce Pay advanced
credit to a wholesaler and used the avocados and their
proceeds as collateral, than with the conclusion that Produce
Pay was an unpaid seller or supplier within the meaning of
PACA. Consequently, Produce Pay was not entitled to
PACA’s protections. Judge M. Smith wrote that, in
concluding otherwise, the majority glossed over the terms of
the parties’ contract, ignored PACA’s statutory purpose, and
downplayed the importance of the en banc decision in
Tanimura.
4          PRODUCE PAY V. IZGUERRA PRODUCE

                        COUNSEL

Robert M. Brochin (argued) and Clay M. Carlton, Morgan
Lewis & Bockius LLP, Miami, Florida; Thomas M.
Peterson, Morgan Lewis & Bockius LLP, San Francisco,
California; for Plaintiff-Appellant.

Maurice Wainer (argued), Snipper Wainer & Markoff,
Beverly Hills, California, for Defendants-Appellees.

Rebecca K. O’Brien and Jonathan M. Saffer, Rusing Lopez
& Lizardi PLLC, Tucson, Arizona; Robert M. Warzel,
Rusing Lopez & Lizardi PLLC, Scottsdale, Arizona; for
Amici Curiae Delta Fresh Sales LLC and Chucho Produce
LLC.

                        OPINION

KELLY, Circuit Judge:

    Plaintiff-Appellant Produce Pay, Inc. (Produce Pay)
appeals from the district court’s dismissal of its federal
claims with prejudice pursuant to Federal Rule of Civil
Procedure 12(b)(6). In its complaint, Produce Pay alleged
that Defendant-Appellee Izguerra Produce, Inc. (Izguerra)
violated several provisions of the Perishable Agricultural
Commodities Act (PACA), and it also brought several state-
law claims. After dismissing Produce Pay’s PACA claims,
the district court declined to exercise supplemental
jurisdiction over the state law claims. We have jurisdiction
pursuant to 28 U.S.C. § 1291, and we reverse and remand
for further proceedings.
           PRODUCE PAY V. IZGUERRA PRODUCE                  5

     FACTUAL AND PROCEDURAL HISTORY

    As alleged in its complaint, Produce Pay is a Delaware
corporation that buys and sells wholesale produce
internationally through its online platform. It also offers
loans and advances to growers to fund the planting,
cultivating, shipping, and marketing of crops. Produce Pay
holds a PACA license issued by the United States
Department of Agriculture (USDA).

    Relevant here, growers, often in Mexico, post to the
online platform when they have produce to sell and
distributors, such as Izguerra, can arrange for the produce to
be shipped to them. The distributor then distributes the
produce to various retail outlets. Produce Pay obtains title
to the produce, but because of the perishable nature of
produce, the produce is shipped directly from the grower to
the distributor in the United States. Upon receipt of the
produce, the distributor then informs Produce Pay how much
of the produce is marketable, and Produce Pay pays the
grower. The distributor is then responsible for reselling the
produce on consignment and must remit the gross proceeds
to Produce Pay less the distributor’s commission and any
permissible expenses or deductions. In addition, Produce
Pay charges the distributor a “marketplacing commission”
when the distributor connects with new growers through
Produce Pay’s online platform. This system, which amici
contend is typical for the industry, “facilitates the movement
of produce from farm to market,” in an international industry
where “there is often little time to draft and sign formal
contracts” because of the perishable and unpredictable
nature of the products. Amici Curiae (Delta Fresh Sales,
L.L.C. and Chucho Produce, L.L.C.) Br. at 7 (quoting John
F. Munger, Importation of Mexican Produce into the United
6            PRODUCE PAY V. IZGUERRA PRODUCE

States: Procedures, Documentation, and Dispute
Resolution, 30 Ariz. J. Int’l & Comp. L. 605, 607 (2013)). 1

    In January 2019, Produce Pay and Izguerra agreed that
Izguerra, through Produce Pay’s online platform, would
receive and accept produce from a grower and subsequently
sell the produce to retailers on Produce Pay’s behalf. While
the parties’ agreement—titled the Distribution Agreement—
stated that Produce Pay would retain title to the produce
before it was sold on consignment by Izguerra, Produce Pay
limited its risk in the event that Izguerra failed to sell any of
the marketable produce. For example, if Izguerra could not
sell the produce at an expected price, Izguerra was still
responsible for a “marketplacing commission” and Produce
Pay reserved the right to recover its commission from other
produce shipments accepted by Izguerra. In addition, the
parties’ agreement provided that Izguerra bore any default
risk regarding purchasers of the produce.

     In April 2019, Izguerra bought 1,600 25-pound cartons
of avocados from Produce Pay through its online platform.
Pursuant to the parties’ agreement, Izguerra received the
avocados directly from the grower. Izguerra then confirmed
its receipt and approval of the shipment on Produce Pay’s
online platform. Produce Pay subsequently issued Izguerra
an invoice for the avocados for $70,560.00. This amount
represented the net proceeds from the avocados. Produce

    1
       The dissent challenges our reliance on amici and a law review
article. See Dissent at 33. While noting that the dissent relies upon such
secondary sources as a legal dictionary and treatises, indeed even
Produce Pay’s website, we recognize that such sources are hardly
binding. The challenged sources help illustrate how a sophisticated
industry has adapted to the unremarkable fact that avocados are highly
perishable and have a short shelf life.
           PRODUCE PAY V. IZGUERRA PRODUCE                    7

Pay’s invoice reiterated that the avocados were sold “subject
to the [PACA] statutory trust.”

    Izguerra never fully paid Produce Pay and had an
outstanding balance of $63,786.56 by November 2019.
Consequently, Produce Pay filed suit and alleged several
claims under PACA. The district court granted Izguerra’s
motion to dismiss with prejudice concluding that as a matter
of law Produce Pay was not a seller of wholesale produce
and thus not entitled to PACA protections. Specifically, the
district court applied the transfer-of-risk test articulated by
this court in S&H Packing & Sales Co. v. Tanimura
Distributing, Inc., 883 F.3d 797, 813 (9th Cir. 2018) (en
banc), and found that the transaction between Produce Pay
and Izguerra was a secured loan rather than a true sale. The
district court recharacterized the transaction as a secured
loan because Izguerra bore all the risk if one of its purchasers
defaulted, Izguerra was liable for damages for a variety of
adverse contingencies that might result in non-payment, and
Produce Pay reserved the right to collect deficits from its
other transactions with Izguerra.

    On appeal, Produce Pay argues that the district court
erred by not crediting Produce Pay’s well-pled factual
allegations which it maintains state a plausible PACA claim.
Produce Pay also objects to the district court’s
recharacterization of the transaction from a sale to a secured
loan. Finally, it maintains that dismissal without leave to
amend was improper given the liberal policy favoring
amendment.
8          PRODUCE PAY V. IZGUERRA PRODUCE

                       DISCUSSION

A. Standard of Review

    This court reviews the dismissal of a complaint under
Rule 12(b)(6) de novo. Applied Underwriters, Inc. v.
Lichtenegger, 913 F.3d 884, 890 (9th Cir. 2019). “In so
doing, we accept all well-pleaded factual allegations in the
complaint as true and construe the pleadings in the light most
favorable to the plaintiff.” Walker v. Fred Meyer, Inc.,
953 F.3d 1082, 1086 (9th Cir. 2020). However, “we ‘need
not . . . accept as true allegations that contradict matters
properly subject to judicial notice or by exhibit.’” Gonzalez
v. Planned Parenthood of L.A., 759 F.3d 1112, 1115 (9th
Cir. 2014) (quoting Sprewell v. Golden State Warriors,
266 F.3d 979, 988 (9th Cir. 2001)). Dismissal is improper
where the complaint alleges “enough facts to state a claim to
relief that is plausible on its face.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007).

    B. Produce Pay plausibly alleged that it was a seller
       or supplier under PACA.

    PACA was enacted in 1930 to prevent unfair business
practices and create stability and financial responsibility in
the fresh produce industry. Perfectly Fresh Farms, Inc. v.
U.S. Dep’t of Agric., 692 F.3d 960, 963 (9th Cir. 2012).
PACA prevents dealers or commission merchants, like
Izguerra, from failing to pay in full promptly for any produce
they receive in interstate commerce. 7 U.S.C. § 499b(4).
Additionally, PACA requires produce held by a commission
merchant or dealer to be held “in trust for the benefit of all
unpaid suppliers or sellers of such commodities or agents
involved in the transaction.” 7 U.S.C. § 499e(c)(2). Thus,
as a preliminary matter, Produce Pay must allege the
following to state a PACA claim:
            PRODUCE PAY V. IZGUERRA PRODUCE                        9

        (1) the commodities sold were perishable
        agricultural commodities, (2) the purchaser
        was a commission merchant, dealer, or
        broker, (3) the transaction occurred in
        contemplation of interstate or foreign
        commerce, (4) the seller has not received full
        payment on the transaction, and (5) the seller
        preserved its trust rights by including
        statutory language referencing the trust on its
        invoices.

Sun Hong Foods, Inc. v. Outstanding Foods, Inc., No.
CV19-10121, 2020 WL 2527048, at *3 (C.D. Cal. Mar. 26,
2020) (quoting Tom Ver LLC v. Organic All., Inc., No. 13-
CV-03506, 2015 WL 6957483, at *8 (N.D. Cal. Nov. 11,
2015)). See generally Sunkist Growers, Inc. v. Fisher, 104
F.3d 280, 282–83 (9th Cir. 1997).

    Here, Produce Pay has alleged these five preliminary
elements. The avocados are perishable. Izguerra is a dealer
of avocados. The transaction involved a grower in Mexico;
a California dealer; and Produce Pay, which is a Delaware
corporation, and therefore occurred in contemplation of
interstate or foreign commerce. Produce Pay has alleged an
outstanding balance of $63,786.56. And finally, the initial
invoice for the avocados states that the avocados were sold
“subject to the [PACA] statutory trust.” The point of
contention is whether Produce Pay was an “unpaid supplier[]
or seller[]” under PACA. 2 7 U.S.C. § 499e(c)(2). While

    2
      While the district court focused on whether Produce Pay was an
unpaid seller, Produce Pay alleged in its complaint (and argues on
appeal) that it was both an “unpaid supplier” and an “unpaid seller.”
However, it did not distinguish between these two categories in its
10           PRODUCE PAY V. IZGUERRA PRODUCE

PACA protects the interests of suppliers and sellers of
produce, it does not protect the interests of parties who are
only lenders. See Tanimura, 883 F.3d at 802–03. Izguerra
contends that Produce Pay was not a seller because the
avocados were sold to Izguerra directly by the grower. 3

    We conclude that Izguerra’s characterization of the
transaction is at odds with Produce Pay’s allegations and
incorporated exhibits, which we must construe in Produce
Pay’s favor. See Walker, 953 F.3d at 1086. Produce Pay
alleges facts that resemble a consignment transaction
between Produce Pay and Izguerra and suggest Produce Pay
functioned as a seller. Produce Pay alleges that it sold
approximately 20 tons of avocados to Izguerra through its
online platform for Izguerra “to sell on consignment.”
Produce Pay also alleges that it bought the avocados from
the grower and retained title to the avocados, even though
they were shipped directly to Izguerra from the grower.

     Produce Pay attached exhibits to its complaint that
support its allegations.      The Distribution Agreement
between Produce Pay and Izguerra provides that Produce
Pay is “a bona fide purchaser acting in good faith,” and that
“title to the produce will remain with [Produce Pay]” until
sold to a retailer “on a consignment basis.” The agreement
also outlines the structure of a consignment transaction.
Izguerra receives a commission from the sale, but it was

arguments. Therefore, for simplicity we refer only to “unpaid seller” in
analyzing this issue.
     3
      This court declines to address Izguerra’s alternative argument that
Produce Pay waived its PACA claims as Izguerra failed to adequately
address the issue on appeal or make a similar argument before the district
court. See J. K. J. v. City of San Diego, 17 F.4th 1247, 1261–62 (9th Cir.
2021).
           PRODUCE PAY V. IZGUERRA PRODUCE                  11

required to remit other proceeds to Produce Pay. In finding
that PACA did not apply, the district court pointed out the
ways in which Produce Pay limited its risk in the distribution
agreement. However, the allegations and exhibits must be
construed holistically in favor of Produce Pay, and Produce
Pay plausibly alleges a consignment transaction.

    Additionally, it is not enough for Izguerra to point out
that Produce Pay never physically possessed the avocados.
An avocado can go from perfectly ripe to blackened, bruised,
and inedible with remarkable speed. Thus, in the perishable
produce industry, physical possession alone is a poor
indicator of who has title. See Munger, 30 Ariz. J. Int’l &
Comp. L. at 606–07, 617. While Izguerra may have second
thoughts regarding the deal it struck, at this point we cannot
conclude that the transaction did not afford Produce Pay
protection under PACA. Produce Pay has plausibly alleged
that it is a seller entitled to PACA’s protections and that the
parties’ transaction was a consignment deal rather than a
secured loan.

    The district court applied the transfer-of-risk test
articulated by this court in Tanimura, 883 F.3d at 805–09, to
determine that PACA does not apply. Tanimura involved
growers who sold produce on credit to a distributor
(Tanimura). Tanimura in turn sold to retailers on credit and
then transferred the resulting accounts receivable to AgriCap
Financial. AgriCap described it as a sale of the accounts
pursuant to a factoring arrangement, but the transaction also
resembled secured lending because AgriCap took a security
interest in the accounts, filed financing statements, and had
recourse against Tanimura if the receivables were
uncollectible. Id. at 799. Tanimura became insolvent
without paying the growers, and the growers sued AgriCap.
Id. at 799–800. The court adopted a transfer-of-risk test to
12         PRODUCE PAY V. IZGUERRA PRODUCE

determine whether the transfer of receivables was part of a
secured loan or a sale. Id. at 813. A secured loan meant that
the receivables were part of PACA trust and therefore gave
the growers priority. Id. at 804. A commercially reasonable
sale would have removed the proceeds from the PACA trust.
Id.

     The Tanimura court adopted a two-step inquiry. Id.
at 801. First, a court must determine whether the transaction
is a true sale by primarily looking at whether the transaction
transferred the risk of nonpayment of the receivables to the
buyer as opposed to merely providing a security interest. Id.
at 801–02. Absent a true sale, the assets remain part of the
PACA trust. Id. Second, if it is a true sale, a court must
assess whether the sale is commercially reasonable. Id.
at 802. If it is, the assets are not part of the PACA trust. Id.

    The court articulated “a number of factors” that may be
used to assess where the risk was allocated in a factoring
agreement. Id. at 805–06. In particular, it was concerned
with whether the sale of the accounts receivable breached the
PACA trust previously created by the transaction between
the grower and the distributor. Id. at 804–05. The court
noted that this test was proper on a motion for summary
judgment where it “is not perfectly clear,” and “when the
true nature of the transaction is ambiguous.” Id. at 804.

    Unlike Tanimura, this case does not involve an accounts
receivable factoring arrangement. It does not appear that
Produce Pay “loaned” the avocados to Izguerra, took a
security interest in Izguerra’s receivables, or filed a
financing statement. Produce Pay alleged that Izguerra
failed to pay for produce that Izguerra itself received from
Produce Pay, while in Tanimura, growers protected by a
PACA trust were suing a third-party for violating the trust.
In other words, Tanimura analyzed whether a sale occurred
             PRODUCE PAY V. IZGUERRA PRODUCE                         13

to determine whether a PACA trust was violated. But here,
the question is whether Produce Pay is an “unpaid supplier[]
or seller[]” entitled to the protections of a PACA trust in the
first place. 7 U.S.C. § 499e(c)(2).

    Furthermore, the Tanimura court found that applying the
transfer-of-risk test was appropriate at the summary
judgment stage, 883 F.3d at 801, while this case arises on a
motion to dismiss. The Tanimura court noted that the
district court, when applying the transfer-of-risk test on
remand, should “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.” Id. at 813. Here, no
testimony has been taken nor any discovery conducted as to
the relationship between the growers, Produce Pay, and
Izguerra. A substantive, fact-intensive inquiry into “the
rights and risks transferred between the parties,” is more
suitable after discovery, at summary judgment, especially to
consider the relationship and priority implications between
all parties. Tanimura, 883 F.3d at 805.

    Izguerra also argues that we should follow In re Spiech
Farms, LLC (Spiech), where the Sixth Circuit found that
Produce Pay was “ineligible for relief through its PACA
claim.” 840 F. App’x 861, 863 (6th Cir. 2021). 4 Spiech
involved a bankruptcy proceeding where Produce Pay
claimed priority under PACA to Spiech’s assets. Id. There,
Produce Pay gave the grower short-term loans as a partial
advance on later payments the grower was supposed to

    4
      Both the district court and Izguerra discussed the Western District
of Michigan’s opinion in that case. However, the Sixth Circuit has since
affirmed the district court’s decision, and we review that opinion.
14          PRODUCE PAY V. IZGUERRA PRODUCE

receive from its existing customers (rather than from new
distributors it had identified through Produce Pay’s online
platform). Id. at 864. The grower was then required to repay
the loan plus a commission, which in effect was interest. Id.
After an evidentiary hearing, the bankruptcy court found that
Produce Pay was not a seller in this transaction and,
therefore, not covered by PACA. Id. at 865. The Sixth
Circuit, in an unpublished opinion, applied our Tanimura
transfer-of-risk test and found that Produce Pay was not
protected by PACA. Id. at 867–68.

    Much like Tanimura, Spiech applied the transfer-of-risk
test to different facts at a different point in the litigation to
answer a different question than that posed here. Unlike
here, Spiech involved an agreement between the grower and
Produce Pay, rather than the distributor and Produce Pay. Id.
at 863.       Additionally, in Spiech, Produce Pay was
functioning as a lender so that the grower could “increase its
cash flow,” rather than as a purchaser of perishable goods.
Id. at 864. In contrast, here Produce Pay does not assert, and
the Distribution Agreement does not appear to create a right
to additional payments over time that could be construed as
interest, rather than as a late payment penalty. Produce Pay
alleges in the instant complaint that it both “buys and sells
wholesale       quantities     of    perishable     agricultural
commodities,” and is “engaged in the business of providing
cash flow and alternative financing solutions to fresh
Produce sellers or growers.” Produce Pay is a company that
offers various products and services in the perishable
produce industry, and the transactions alleged here and
considered in Spiech are clearly different.

   Finally, Spiech involved a procedural posture much
more analogous to Tanimura than the instant case. The Sixth
Circuit applied the transfer-of-risk test after the bankruptcy
           PRODUCE PAY V. IZGUERRA PRODUCE                 15

court had already conducted an evidentiary hearing. Id.
at 865. Thus, it made the determination on a record that was
much more developed than what we have in this case.
Spiech does not demonstrate that the fact-intensive transfer-
of-risk test is appropriate at the pleading stage when neither
party has had an opportunity to present evidence or conduct
discovery.

     The dissent essentially recognizes that the complaint
adequately pleads that Produce Pay is an unpaid seller or
supplier and that consignment sales are protected
transactions under PACA. Dissent at 26–27. According to
the dissent, the exhibits attached to the complaint
conclusively establish that Produce Pay is not an unpaid
seller, but rather a lender. Dissent at 31–32. This is so
because Produce Pay transferred some of the risk of the
transaction to the consignee, and while it had title to the
avocados, Produce Pay never took possession. The dissent
maintains that the correct analogy is a home mortgage in a
title theory state. The dissent notes that Produce Pay should
be satisfied with other remedies against Izguerra, including
breach-of-contract and tort claims.

    The dissent contends that we have not afforded
Tanimura sufficient weight and have been deceived by
Produce Pay’s pleadings. However, Tanimura must be read
against its facts, which varied considerably from this case,
and did not include anything resembling a consignment
transaction. Additionally, the Tanimura court restricted its
holding to factoring agreements, or sales of accounts
receivable to a third party who was not involved in the
transfer of produce. See 883 F.3d at 802, 809, 813. There
simply was no such transaction here. To analogize this case
to that one is to pound a square peg into a round hole.
16         PRODUCE PAY V. IZGUERRA PRODUCE

    Beyond the factual differences, Tanimura applied the
“transfer-of-risk” test with the precise and limited purpose
of determining whether the assets were part of a PACA trust.
It did not establish a test for determining who is an unpaid
seller and thus a beneficiary of a PACA trust. Indeed, in
Tanimura, no one disputed who the trust beneficiary was—
we summarily found that the arrangement there “made [the
distributor] a trustee over a PACA trust holding the
perishable products and any resulting proceeds for [the
growers] as PACA-trust beneficiaries.” Id. at 799.

    This question of status that was assumed in Tanimura is
what we must squarely answer here. And nothing in PACA
or Tanimura prevents a business from buying produce from
a grower outright, and then supplying that produce to a
distributor in a way such that the business receives PACA
priority. Unlike in Tanimura, Produce Pay is not an external
lender attempting to leapfrog an unpaid grower by enforcing
a security interest it took in Izguerra’s assets. Produce Pay
alleges that it is the supplier or seller of avocadoes, and thus
an internal party to the transaction.

    Furthermore, the Tanimura court made clear that the
transfer-of-risk test is appropriate where “the true nature of
the transaction is ambiguous.” Id. at 804. However, this
court must “accept[] as true” the plaintiff’s factual pleadings.
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The dissent
ignores the well-pleaded facts, which on a motion to dismiss
must be taken as true. Instead, while recognizing ambiguity
exists, the dissent focuses on various documentary items
which could cover several different types of transactions,
depending on a particular situation, to determine which
“features predominate.” Dissent at 33. As “it is improper to
[accept the truth of matters asserted in incorporated
documents] only to resolve factual disputes against the
            PRODUCE PAY V. IZGUERRA PRODUCE                   17

plaintiff’s well-pled allegations in the complaint,” the
dissent errs. Khoja v. Orexigen Therapeutics, Inc., 899 F.3d
988, 1014 (9th Cir. 2018). Produce Pay must simply state a
plausible claim, rather than one that is likely to succeed.
Ashcroft, 556 U.S. at 679; Twombly, 550 U.S. at 555–56.

     Furthermore, the dissent relies on Sprewell v. Golden
State Warriors, 266 F.3d 979, 989 (9th Cir. 2001), for the
proposition that the exhibits fatally undermine Produce
Pay’s claims. Dissent at 27 n.3. In that case, however, this
court affirmed the dismissal of race discrimination claims
where the attached arbitration decision (by a neutral
arbitrator after a full hearing and briefing) directly
contradicted the complaint. Sprewell, 266 F.3d at 984, 988–
89. Here, while the dissent may identify certain provisions
it finds compelling, the attached exhibits in this case do not
uniformly or directly contradict Produce Pay’s allegations.

    Finally, this court notes that the dissent treats
Tanimura’s transfer-of-risk test as the sole focus of its
inquiry. See Dissent at 30–32. However, Tanimura simply
requires “a threshold true sale test of which the transfer-of-
risk [test] is a key, but not the sole, factor.” 883 F.3d at 801.
The Tanimura court does not appear to suggest that courts
must set aside traditional principles of contract interpretation
when considering PACA claims.

    As we find that Produce Pay plausibly alleges a PACA
claim, it is unnecessary to decide whether it was appropriate
for the district court to dismiss the complaint without leave
to amend. We express no opinion on the merits of Produce
Pay’s PACA claims, instead concluding only that,
construing the pleadings in favor of Produce Pay, Tanimura
does not bar Produce Pay from qualifying as an unpaid seller
under PACA as a matter of law.
18         PRODUCE PAY V. IZGUERRA PRODUCE

   Accordingly, we REVERSE and REMAND for further
proceedings consistent with this opinion.

M. SMITH, Circuit Judge, dissenting:

    PACA protects only “unpaid seller[s] or supplier[s] of
produce,” not financiers who made a bad investment.
7 U.S.C. § 499e(c)(2). With respect, I fear that my
colleagues have been led astray by Produce Pay’s artful
attempts to plead that it was an unpaid seller or supplier
within the meaning of PACA. Although some conclusory
allegations in the complaint may suggest otherwise, plaintiff
Produce Pay was not acting as a simple avocado seller here.
The pleadings as a whole—including especially the exhibits
attached to the complaint and incorporated by reference—
are far more consistent with an alternative financing
arrangement, whereby Produce Pay advanced credit to a
wholesaler and used the avocados and their proceeds as
collateral. Consequently, though it can sue to recover its
investment in contract or tort, it is not entitled to PACA’s
protections. In concluding otherwise, the panel glosses over
the terms of the parties’ contract, ignores PACA’s statutory
purpose, and downplays the importance of our court’s en
banc decision in S & H. Packing & Sales Co. v. Tanimura
Distributing, Inc., 883 F.3d 797 (9th Cir. 2018) (Tanimura).
I therefore respectfully dissent.

                             I.

    Before addressing the specific transaction at issue here,
I begin by addressing what I believe to be the majority’s
most serious error: its treatment of Tanimura. The majority
underreads that decision in concluding that it does not reach
            PRODUCE PAY V. IZGUERRA PRODUCE                      19

beyond its facts, but then overreads it to conclude it created
a rule that is inapplicable at the pleadings stage.

                                A.

    PACA provides that any produce or proceeds from
produce transactions “received by a commission merchant,
dealer, or broker . . . shall be held . . . in trust for the benefit
of all unpaid suppliers or sellers of such commodities or
agents involved in the transaction.” 7 U.S.C. § 499e(c)(2).
Congress created this trust remedy for the express purpose
of reducing the “burden on commerce in perishable
agricultural commodities [that] is caused by financing
arrangements” pursuant to which dealers in agricultural
commodities “who have not made payment” for the produce
they have purchased use that same produce as collateral for
lending arrangements. Id. § 499e(c)(1).

    Tanimura is our court’s seminal decision on how to
interpret and apply PACA. In Tanimura, we recognized that
PACA was intended to “shield agricultural growers” from
the “risk” of non-payment that occurs when the buyer
defaults, and “banks and other lenders” recover anything
they can on their investments from these buyers. 883 F.3d
at 802–03. Elaborating on this purpose, we explained that:

        [Produce sellers ordinarily] 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 [pre-existing] law, sellers of fresh
        fruits and vegetables [were] unsecured
        creditors and receive[d] little protection in
        any suit for recovery of damages where a
        buyer [had] failed to make payment as
20           PRODUCE PAY V. IZGUERRA PRODUCE

         required by contract. . . . Due to a large
         number of defaults . . . 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.

883 F.3d at 802–03 (first quoting H.R. Rep. No. 98-543 at *3
(1984), as reprinted in 1984 U.S.C.C.A.N. 405, 407, and
then Endico Potatoes, Inc. v. CIT Grp./Factoring, Inc.,
67 F.3d 1063, 1067 (2d Cir. 1995)).

    In light of PACA’s text, history, and purpose, Tanimura
laid out “the proper analysis to apply when the true nature of
[a] transaction is ambiguous—i.e. when it resembles a sale
in some respects and yet looks like a secured transaction in
others.” Id. at 804. As the majority explains, Tanimura
involved a so-called “factoring” transaction. Defendant
Tanimura purchased produce from the grower plaintiffs for
re-sale to third-party buyers, and then sold the accounts
receivable from the sale to defendant AgriCap for quick cash
at a slight discount. See id. at 799–800 & n.2. While this
transaction was “described as a sale of accounts,” the
growers argued that it was effectively a secured loan, noting
among other facts that AgriCap could force a “repurchase”
of the receivables from Tanimura in the event of non-
payment by the buyers. Id. at 799–800. On this theory, the
receivables remained in the PACA trust because they had
been pledged as collateral for cash rather than exchanged for
other assets. See id. at 800. 1

     1
      This mattered in Tanimura because a PACA trustee has a fiduciary
obligation “to ensure all trust beneficiaries are paid before the lender
collects.” Id. at 812. If AgriCap had indeed made a loan to Tanimura
             PRODUCE PAY V. IZGUERRA PRODUCE                       21

    Tanimura held that, consistent with authority from other
circuits, courts must look beyond the “labels” used by the
parties to determine whether a “true sale” or a loan had
occurred. Id. at 813. That distinction is drawn by looking at
the substance of the transaction, especially how the parties
allocated the risk of loss. See id.

                                 B.

    Perhaps recognizing that Tanimura’s focus on substance
over form does not bode well for its analysis, the majority
attempts to cabin Tanimura to its facts, suggesting that (1) it
applies only to factoring agreements and (2) that whether
Produce Pay was conducting a “sale” within the meaning of
PACA does not impact whether Produce Pay was a “seller”
protected by PACA. The second of these arguments is
illogical on its face, and one wonders why Tanimura’s broad
declarations about the need to focus on substance over form
to effectuate PACA’s purpose would apply to only some
parts of the statute, but not others. Framed either as a
question about whether a party has engaged in a sale or as a
question about whether that party was a seller, the point of
the transfer-of-risk test is to determine “the substance of the
relationship” between the parties. Id. at 807 (quoting Reaves
Brokerage Co. v. Sunbelt Fruit & Vegetable Co., 336 F.3d
410, 414 (5th Cir. 2003)). When applying the transfer-of-
risk test, if “the relationship between [the parties is] that of a
secured lender and debtor, not a seller and buyer,” it makes

and then enforced that loan by demanding a cash “repurchase” of the
receivables, the result would have been that AgriCap—a mere lender—
would have received payment before the produce growers, resulting in a
breach of the PACA trust. See id.
22         PRODUCE PAY V. IZGUERRA PRODUCE

no sense to conclude that one of the parties is nonetheless a
“seller” protected by PACA. Reaves, 336 F.3d at 414.

    As for the majority’s first claim, Tanimura did, of
course, involve a factoring transaction, so it is unsurprising
that some of its language reflects this fact. See, e.g., id. at
809 (“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.” (emphasis
added)). However, Tanimura’s overall language is much
broader. Our opinion extensively discussed PACA’s
legislative history and express Congressional purpose,
concluding that PACA is intended to protect agricultural
growers against the interests of lenders. See id. at 802–03.
We were unequivocal that, “[g]iven 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.” Id. at 803. “[C]ourts must focus on the true
substance of PACA-related transactions and not on artificial
indicators or labels,” because “[i]t 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.” Id. at 808.

   None of this language is limited to factoring transactions.
To the contrary, we disapproved of relying “on labels” over
substance, holding that a focus on form over economic
substance would “defeat the purposes of PACA.” Id. at 809.
PACA’s text provides no indication that factoring
agreements are somehow special (nor does the majority
provide any principled reason why this should be the case),
suggesting instead that Congress drew a broader distinction
between financiers and those playing a more direct role in
            PRODUCE PAY V. IZGUERRA PRODUCE                    23

the agricultural supply chain. See 7 U.S.C. § 499e(c)(1)&(2)
(distinguishing “unpaid sellers and suppliers” from
“lenders” and others involved in “financing arrangements”).

                               C.

    In another attempt to distinguish Tanimura, the majority
latches onto the fact that our decision in Tanimura occurred
at the summary-judgment stage, and the fact that we
remanded the case to the district court with instructions to
apply the transfer-of-risk test in the first instance, to divine a
new rule that the transfer-of-risk test is inapplicable at the
pleadings stage. Tanimura held no such thing, nor has the
majority been able to identify any other decision in support
of its new rule. In general, we have declined to create
categorical rules that an issue cannot be resolved at the
pleadings stage, even if the issue is fact-sensitive and often
benefits from further development of the record. See, e.g.,
PLS.Com, LLC v. Nat’l Ass’n of Realtors, 32 F.4th 824, 2022
WL 1218792, at *10 (9th Cir. 2022) (rejecting the argument
that defining the relevant market and determining whether a
practice is anticompetitive for an antitrust claim are “fact-
bound issues not susceptible to resolution on a motion to
dismiss”); Wong v. United States, 373 F.3d 952, 957 (9th
Cir. 2004) (explaining that a qualified immunity defense
may be raised at the pleadings stage in civil rights cases
despite the difficulties of “decid[ing] far-reaching
constitutional questions on a nonexistent factual record”);
Saved Magazine v. Spokane Police Dep’t, 19 F.4th 1193 (9th
Cir. 2021) (upholding dismissal of complaint based on
qualified immunity); Weisbuch v. Cnty. of Los Angeles,
119 F.3d 778, 783 & n.1 (9th Cir. 1997) (recognizing that
“factual development” is sometimes necessary to apply
First-Amendment balancing test, but rejecting as “illogical”
24         PRODUCE PAY V. IZGUERRA PRODUCE

the argument that this test cannot be applied at the pleadings
stage).

    To the contrary, we have recognized that “[w]hether [a]
case can be dismissed on the pleadings depends on what the
pleadings say. [A] plaintiff may plead herself out of court.
If the pleadings establish facts compelling a decision one
way, that is as good as if depositions and other expensively
obtained evidence on summary judgment establishes the
identical facts.” Weisbuch, 119 F.3d at 783 n.1 (cleaned up);
accord Cline v. Indus. Maint. Eng’g & Contracting Co.,
200 F.3d 1223, 1232 (9th Cir. 2000) (a plaintiff can “plead[]
himself out of court” by alleging facts that show he has “no
claim” (quoting Thomas v. Farley, 31 F.3d 557, 558–59 (7th
Cir. 1994))).

    As an illustration, it is hard to imagine that we could
characterize a bank as a seller protected by PACA if it filed
a complaint alleging that it lent money to a produce
purchaser: in that case, it would be apparent from the face of
the complaint that the bank had no PACA claim. That claim
would become no more plausible if the bank’s pleadings
contained essentially the same facts evincing a loan
transaction, but added conclusory legal allegations that the
transaction was a “sale” and that the bank was a “seller”
within the meaning of PACA. See, e.g., Whitaker v. Tesla
Motors, Inc., 985 F.3d 1173, 1176 (9th Cir. 2021) (“well-
pleaded facts,” not “legal conclusions,” are necessary to
survive a Rule 12(b)(6) motion (citing Ashcroft v. Iqbal,
556 U.S. 662, 679 (2009); Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 570 (2007))); see also Tanimura, 883 F.3d
at 808–09 (the labels the parties place on their transaction do
not control over the substance of the transaction).

   Additionally, contrary to the majority’s assertion,
Tanimura did not instruct the district court that it “should”
             PRODUCE PAY V. IZGUERRA PRODUCE                         25

engage in further factfinding; it said that “the district court
may use all the tools at its disposal . . . including the taking
of testimony and making findings of fact.” 883 F.3d at 813
(emphasis added). This was permission, not a command.
See also id. at 813 n.13 (giving the district court “discretion
to determine the appropriate procedure for conducting” the
transfer-of-risk inquiry).

    In fact, on remand, there was ultimately “no suggestion
by the parties” that any additional fact-finding procedures
were necessary. S & H Packing & Sales Co. v. Tanimura
Distrib., Inc., No. 08-cv-5250, 2018 WL 6011546, at *7
(C.D. Cal. Sept. 17, 2018) (noting that all relevant evidence
was presented the parties’ summary judgment briefs). The
district court did not find the case to be “a ‘difficult’ one,”
and concluded that the transaction was a loan. Id. Its
analysis focused on the structure of the parties’ agreement,
with special attention to the financial terms, emphasizing
that what “matters” is “the structure of the agreement, [i.e.]
the rights that are afforded to the buyer/lender” rather than
more fact-sensitive matters such as the parties’ course of
dealing. Id. This conclusion is fully consistent with our
court’s opinion, which focused on transfer of legal risk (i.e.,
by contractual formality) rather than a blow-by-blow
account of how the transaction unfolded.

   As I explain in more detail below, Produce Pay’s and
defendant Izguerra’s agreement, along with other attached
documents and factual allegations in the complaint, supply
enough information to conduct that analysis here. 2 The facts

    2
      Produce Pay’s appellate briefing further betrays that this case is
appropriate for resolution at the pleadings stage without further
discovery. See Whitaker, 985 F.3d at 1177 (“[C]omplaints must
plausibly suggest an entitlement to relief, such that it is not unfair to
26            PRODUCE PAY V. IZGUERRA PRODUCE

that may be drawn from the pleadings as a whole evince a
loan transaction rather than sale, despite Produce Pay’s
conclusory allegations that it was the seller in a consignment
sale. See Iqbal, 556 U.S. at 679; Twombly, 550 U.S. at 570;
Cooper v. Pickett, 137 F.3d 616, 622 (9th Cir. 1997)
(“[M]aterial which is properly submitted as part of the
complaint may be considered on a motion to dismiss.”).

                                    II.

    Turning to the specifics of this case, I do agree with the
majority on two points. First, “While PACA protects the
interests of suppliers and sellers of produce, it does not
protect the interests of lenders.” Second, as a consequence,
the relevant question in this appeal “is whether Produce Pay
was an ‘unpaid supplier[] or seller[]’ under PACA” for
purposes of this transaction. See 7 U.S.C. § 499e(c)(2).
Unfortunately, I cannot agree with how the majority answers
this question.

                                    A.

    If the court’s task were to consider the complaint in
isolation, without looking to any of the attached exhibits, a
case could be made that Produce Pay adequately pleaded it
was an unpaid seller. The complaint describes Produce Pay
not as a provider of financing solutions, but as a Los
Angeles-based wholesaler of avocados and other produce. It
alleges that Produce Pay entered into an agreement with

require the opposing party to be subjected to the expense of discovery
and continued litigation.” (cleaned up)). It offers no additional facts that,
if properly pleaded, could show this was a sale rather than a loan. For
that same reason, I would affirm the district court’s decision to dismiss
this case without leave to amend. See Leadsinger, Inc. v. BMG Music
Pub., 512 F.3d 522, 532 (9th Cir. 2008).
             PRODUCE PAY V. IZGUERRA PRODUCE                         27

defendant-appellee Izguerra Produce, Inc. to sell avocados
to third parties. Throughout the complaint and the attached
contract, the arrangement between Produce Pay and Izguerra
is described as a “consignment” transaction, meaning “[a]
sale of an owner’s property . . . by a third party entrusted to
make the sale,” Sale, Black’s Law Dictionary (11th ed. 2019)
(citing UCC § 9-102(a)(20)). It is undisputed that PACA
and its implementing regulations treat consignment sales as
protected transactions. See, e.g., 7 U.S.C. § 499b(2), (4);
7 C.F.R. § 46.2(aa)(1), (2).

     However, Produce Pay’ complaint references several
attached exhibits—including its contract with Izguerra and
invoices sent during the parties’ transaction—that contradict
its claim that it was an unpaid seller rather than a financier.
Even at the pleadings stage, we may—and should—consider
these documents (as well as any matters properly subject to
judicial notice) to the extent they contradict the allegations
in the complaint. See, e.g., Gonzalez v. Planned Parenthood
of Los Angeles, 759 F.3d 1112, 1115 (9th Cir. 2014)
(“Although we normally treat all of a plaintiff’s factual
allegations in a complaint as true, we ‘need not . . . accept as
true allegations that contradict matters properly subject to
judicial notice or by exhibit.’” (quoting Sprewell v. Golden
State Warriors, 266 F.3d 979, 988 (9th Cir. 2001), and
collecting cases)). 3

    3
        The majority quotes Khoja v. Orexigen Therapeutics, Inc., for the
proposition that “it is improper” to rely on incorporation by reference
“only to resolve factual disputes against the plaintiff’s well-pled
allegations in the complaint.” 899 F.3d 988, 1014 (9th Cir. 2018). Khoja
did not disturb our line of cases that discuss “contradictions” between
pleadings and documents attached to these pleadings, such as Gonzalez
and Sprewell. Moreover, reading our statement from Khoja in context,
it is clear we were concerned with situations where a defendant cherry-
28            PRODUCE PAY V. IZGUERRA PRODUCE

    Specifically, the complaint alleges that Produce Pay
bought “approximately 40,000 pounds” of avocados from
sellers in Mexico, and then “entrusted” them to Izguerra to
sell to buyers located in California, among other places.
Both the complaint and the contract indicate that the
avocados were shipped directly from the growers to
Izguerra, without Produce Pay ever physically possessing
them. The contract indicates that the avocados were shipped
to Izguerra at the very beginning of the transaction. If
Izguerra accepted the shipment, it was supposed to indicate
that by uploading shipping documents on Produce Pay’s
online platform. Only then would Produce Pay “take title”
to the avocados and, at “its sole discretion,” “remit a first
payment” to the growers. Produce Pay also had the right to
send Izguerra an invoice at this point in the transaction.

picks between numerous incorporated documents from which competing
inferences can be drawn to dispute a plaintiff’s otherwise well-pleaded
factual assertions. See, e.g., id. at 1002 (“The district court’s reasoning
here again demonstrates the danger in incorporating documents en masse
into complaints. Once documents are incorporated into a complaint, a
district court faces competing, often inconsistent versions of the facts.
Although plaintiffs are ordinarily afforded the benefit of every favorable
inference, the incorporation-by-reference doctrine can allow defendants
to exploit that benefit for themselves.”).

     Khoja did not involve a situation such as this where the attached
documents provide additional facts omitted from the complaint that
“fatally undermine[]” the plaintiff’s claims. Sprewell, 266 F.3d at 988
(holding district court properly considered attached arbitration award at
the pleadings stage); see also Khoja, 899 F.3d at 1002 (explaining that
the incorporation-by-reference doctrine is supposed to “prevent[]
plaintiffs from selecting only portions of documents that support their
claims, while omitting portions of those very documents that weaken—
or doom—their claims”); id. at 1003 (noting that this doctrine “is
designed to prevent artful pleading”).
            PRODUCE PAY V. IZGUERRA PRODUCE                   29

Produce Pay retained title to the avocados until Izguerra sold
them.

    However, the contract attached to the complaint provides
details about the business terms of the parties’ agreement
that contradict the complaint’s conclusory allegations. On
top of a “Marketplacing Commission” earned for
introducing Izguerra to its approved suppliers, Produce Pay
was entitled to all proceeds from the eventual sale of the
avocados, minus a “Distributor’s Commission” pocketed by
Izguerra and deductions for certain expenses. If Izguerra
sold the avocados for less than the amount it owed Produce
Pay for them, it had to forfeit as much of its profits as
necessary to make up the deficit. The parties’ contract also
shifted “all default risk” to Izguerra, meaning that Izguerra
was required to “compensate” Produce Pay if the third-party
buyers failed to make payment after taking possession of the
avocados.

    Consistent with these terms, Produce Pay sent a
$70,5600 invoice to Izguerra after it confirmed receipt of the
avocados. Izugerra sold the avocados but ultimately
remitted only $15,000 to Produce Pay, resulting in an
outstanding invoice for $63,786.56 including interest and
attorneys’ fees.

    The district court correctly concluded that this
transaction is more aptly categorized as a secured financing
arrangement rather than a sale. Tanimura held that courts
must “apply a threshold true sale test for which the transfer-
of-risk is a primary factor” in order to determine whether a
given transaction is a sale or a loan. Id. at 813. Factors
relevant to assessing the parties’ transfer of risk include (but
are not necessarily limited to) “[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
30         PRODUCE PAY V. IZGUERRA PRODUCE

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.” Tanimura, 883 F.3d
at 808 (quoting Endico Potatoes, 67 F.3d at 1068) (brackets
in original).

    “Transfer of risk” simply refers to the different ways risk
is allocated in a sale versus a loan. See Tanimura, 883 F.3d
at 808–09. Put simply, a true sale involves a direct
assumption of risk by one of the parties, while a lender’s risk
is only indirect. To use an example discussed in Tanimura,
in a simple sale of receivables, the seller would end up with
cash and the buyer would end up with the right to collect
payment from a third party. Id. In this example, the entire
risk of a default by that third party would be borne by the
buyer. Id. In a cash loan secured by receivables, however,
the borrower would still be liable to the lender in the event
of a default. See id.

    In a consignment sale, the consignor entrusts goods to a
consignee to sell goods to a third party. See, e.g., Sale,
Black’s Law Dictionary (11th ed. 2019) (citing UCC § 9-
102(a)(20)). This does not create an ordinary security
interest in the goods. See, e.g., UCC § 9-102(a)(20)(D)
(consignment “does not create a security interest that secures
an obligation”). Instead, a consignment arrangement is best
described as a bailment: unless the consignee is able to sell
the goods to a third party, it is not obligated to pay the
consignor, who retains legal title to the goods even as the
consignee takes possession of them. See, e.g., In re Pettit
Oil Co., 917 F.3d 1130, 1133–34 (9th Cir. 2019) (citing
5 Collier on Bankruptcy ¶ 541.05[1][b] (16th ed.) (2018))
(but holding that consignee is treated as owner of consigned
           PRODUCE PAY V. IZGUERRA PRODUCE                  31

goods when determining creditors’ rights in bankruptcy).
So, the consignor bears a direct risk of a default by the buyer
after the consignment agent conveys the goods.

     By contrast, the contract here expressly shifted “all
default risk of any purchaser” to Izguerra, the alleged
consignee. As discussed, the contract required Izguerra to
pay the full purchase price for the avocados to Izguerra even
if the third-party buyer defaulted or ended up paying much
less for the goods. Izguerra had to make up any deficits by
reducing its own commission from the eventual sale and, if
even that was not enough, reduce its profits from future
sales. Produce Pay also had the right to demand payment
from Izguerra for any outstanding deficits.

    Moreover, unlike an ordinary seller of goods, Produce
Pay never seems to have had any direct risk for the avocados
in the first place. Both the complaint itself and the contract
show that Izguerra took possession of the avocados directly
from the growers. The contract indicates that Produce Pay
did not even take legal ownership of the avocados until after
Izguerra had already accepted them for resale. The
complaint itself admits that the growers sent an invoice
directly Izguerra to establish the value of the avocados
before Produce Pay sent its own invoice for the same
amount.

    This arrangement bears striking similarities to a typical
home mortgage, which is a classic secured loan. In a
mortgage, banks typically take only a security interest in the
home, which may be in the form of a bare legal title
depending on the jurisdiction, rather than taking the riskier
route of buying a home outright and then attempting to resell
it. See, e.g., 59 C.J.S. Mortgages § 241 (West 2021).
Likewise, Produce Pay never had more than a bare legal title
to the avocados. Instead, Produce Pay mainly played a
32         PRODUCE PAY V. IZGUERRA PRODUCE

financing role here. The arrangement allows Produce Pay to
make immediate payments to the growers while Izguerra
was charged interest for any delays in repayment. That is
consistent with solving a common problem in the
agricultural supply chain, namely that growers may have
difficulty trusting the credit of their buyers. As Tanimura
recognized, growers frequently sell their wares on credit.
See 883 F.3d at 802–03. If their buyers fail to resell the
produce at a profit, there may be no funds available to pay
back the growers. As a result, unless buyers seeking to re-
sell agricultural commodities can assure the growers that
they are going to get paid, the growers may be unwilling to
strike a deal.

     The business terms supplied by Produce Pay provide a
financing solution to this dilemma, effectively providing
Izguerra with credit to purchase avocados for resale by
simultaneously promising the growers an advance on the
sale proceeds. As explained, however, Produce Pay assumes
no legal risk in the event that the proceeds are insufficient,
shifting all of this risk to Izguerra. The only risk it faces is
one that is familiar to lenders everywhere: the risk that the
debtor (here, Izguerra) will default on its payment
obligations. Though Produce Pay is free to seek other
remedies for Izguerra’s default—including pursuing its the
breach-of-contract and tort claims asserted in its
complaint—PACA is not the correct instrument to recover
its investment.

                              B.

   The majority resists the conclusion that the transaction
here was a loan rather than a sale in three ways, none of
which is persuasive. First, the majority contends that
Tanimura’s transfer-of-risk test is inapplicable.        As
              PRODUCE PAY V. IZGUERRA PRODUCE                          33

previously explained, that is not accurate. See Parts I.B &
I.C, supra.

    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.

                               III.

    Before concluding, I briefly address Produce Pay’s and
amici’s policy argument that a ruling in Izguerra’s favor
would effectively remove all consignment sales from
PACA’s protections, defeating the purpose of PACA and
disrupting global supply chains. That is pure hyperbole. For
one, Produce Pay remains perfectly free to pursue its breach-
of-contract and tort claims against Izguerra in state court,
even if it can no longer make a federal case out of Izguerra’s
outstanding invoices. 5 Additionally, neither the approach
taken in my dissent nor the district court’s approach treat
consignment sales as falling outside PACA’s protections;
the foregoing analysis properly focuses on the risk-shifting
provisions of the parties’ agreement in this specific

     5
      Produce Pay’s complaint invokes federal question jurisdiction.
The apparent amount in controversy ($63,786.56) is below the $75,000
threshold for diversity jurisdiction. See 28 U.S.C. § 1332(a).
             PRODUCE PAY V. IZGUERRA PRODUCE                         37

transaction, and ensures that true consignment sales are
protected by PACA.

    More importantly, PACA’s basic purpose would not be
undermined by holding that Produce Pay is outside the
statute’s protections here. There is no dispute that the
original growers here are sellers of produce, and therefore
beneficiaries of a PACA trust. Consequently, the primary
result of holding that Produce Pay is not a seller or supplier
would be that the original growers would have a superior
claim to proceeds from the avocados in the event that
Izguerra files for bankruptcy. That is fully consistent with
Congress’s intent to protect produce growers from claims by
lenders. See 7 U.S.C. § 499e(c)(1) & (2).

                                  IV.

    In sum, the district court properly looked beyond the
labels the parties assigned to their transaction and concluded
that Produce Pay has failed to plead that it was an “unpaid
supplier[] or seller[]” of produce protected by PACA.
7 U.S.C. § 499e(c)(2).        That conclusion should be
unsurprising. Produce Pay advertises itself as “the fastest-
growing provider of capital, market insights, and trade
protection for growers of fresh produce.” 6 It says that it
provides alternative financing “solutions” to produce
growers—including “financing . . . for consignment
sales”—that do away with the “need to pledge land as

    6
      About Us, Produce Pay, https://producepay.com/about-us/. The
existence of statements made on Produce Pay’s website is a proper
subject of judicial notice. See, e.g., Arroyo v. AJU Hotel Silicon Valley
LLC, No. 20-CV-08218-JSW, 2021 WL 2350813, at *2 (N.D. Cal. Mar.
16, 2021).
38              PRODUCE PAY V. IZGUERRA PRODUCE

collateral.” 7 For example, Produce Pay offers “[p]re-harvest
grower financing without using land as collateral, with
funding in under 2 weeks.” 8 “Unlike a traditional bank
loan,” Produce Pay says on its website, “our pre-harvest
financing is specifically designed for fresh produce
growers.” 9 Produce Pay also offers so-called “Quick-Pay
Financing [f]or perishable fruits and vegetables” whereby
produce growers received “up to 96% of their shipment’s
value 24 HOURS after their buyer confirms” receipt of any
produce sold. 10 This is said to allow growers to “[f]ocus on
selling, not financing[:] We pay the grower, you pay us once
the product sells.” 11

    It is apparent from the complaint and attached exhibits
that Produce Pay was playing a financing role here. Because
the majority’s contrary conclusion results only from its
refusal to properly apply Tanimura and scrutinize the terms
of the parties’ business dealings, I would affirm the district
court. I respectfully dissent.

     7
         Financing, Produce Pay, https://producepay.com/financing/.

     Pre-Season Financing, Produce Pay, https://producepay.com/pre-
     8

season-financing/.
     9
         Id.

      Quick-Pay Financing, Produce Pay, https://producepay.com/
     10

quick-pay-financing/.
     11
          Id.