author: PER CURIAM: MELLOY, Circuit Judge,

text:
    S & H PACKING & SALES CO., INC., a California corporation, DBA Season Produce Co., Plaintiff, 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. S & H Packing & Sales Co., Inc., a California corporation, DBA Season Produce Co., Plaintiff, and Apache Produce Co., Inc., an Arizona corporation, DBA Plain Jane; O.P. Murphy Produce Co., Inc., a Texas corporation, DBA Murphy & Sons; 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 Agricap Financial Corporation; a Delaware corporation, Defendant-Appellee.
    No. 14-56059, No. 14-56078
    United States Court of Appeals, Ninth Circuit.
    Argued and Submitted on June 6, 2016 Pasadena, California
    Filed February 27, 2017

      Louis W. Diess, III (argued) and Mary Jean Fassett, McCarron & Deiss, 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 (argued), Jr., Law Office of Robert P. Lewis Jr., South 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 Agri-cap Financial Corporation.
    Before: RONALD M. GOULD, MICHAEL J. MELLOY, and ANDREW D. HURWITZ, Circuit Judges.

       The Honorable Michael J. Melloy, Senior Circuit Judge for the U.S. Court of Appeals for the Eighth Circuit, sitting by designation.

   Concurrence by Judge MELLOY

OPINION

PER CURIAM:

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

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

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

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

On appeal, Growers argue that we are not bound by Boulder Fruit because the absence of discussion of the transfer-of-risk test in Boulder Fruit leaves open the question of whether that test should apply in the Ninth Circuit. Agricap counters that 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; yet, the Court did not apply the test.

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

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

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

We therefore affirm the judgment of the district court.

AFFIRMED.

MELLOY, Circuit Judge,

with whom GOULD, Circuit Judge, joins, concurring:-

We concur. We write further, however, because we believe Boulder Fruit was wrongly decided and the Ninth Circuit, sitting en banc, should eliminate this circuit split, speak expressly to this issue, and join the Second, Fourth, and Fifth Circuits by adopting a separate, threshold, transfer-of-risk test.

Congress intended PACA to prevent secured lenders from defeating the rights of PACA-trust beneficiaries. The congressional focus upon the relative rights of these two groups is unmistakable. As such, before assessing the commercial reasonableness of a factoring agreement, it is first necessary to examine the substance of a factoring agreement to ensure a true sale has occurred. In the absence of a true sale, superficial indicators and labels surrounding a factoring agreement should be of no consequence. The substance of the transaction matters. If the substance of a transaction reveals a secured lending arrangement rather than a true sale, the accounts receivable remain trust assets. Thus, unpaid trust beneficiaries hold an interest in accounts receivable and their proceeds superior to all unsecured and secured creditors such that the trust beneficiaries should prevail.

This conclusion enjoys further support in the simple fact that any attempt to assess the commercial reasonableness of a factoring agreement without carefully examining the substance of the rights transferred is an incomplete and abstract exercise. Whether a factoring discount of 10%, 20%, or more is reasonable in any given situation cannot be determined without first assessing what the factoring agent has contracted to do and what risk the factoring agent has accepted. Analyzing a factoring discount by looking exclusively at an initial payment without considering the availability of recourse and without assessing the nature of the rights and risks actually transferred from the distributor to the factoring agent examines only part of the transaction. Such an exercise is not grounded in reality and is akin to declaring a price to be reasonable without first identifying the product or service that carried that price.

We address below the structure and purpose of PACA, the circuit split regarding the transfer-of-risk test, and the appli'cation of that test to' this case.

I. The PACA Trust

“Congress enacted PACA in 1930 to prevent unfair business practices and promote financial responsibility in the fresh fruit and produce industry.” Boulder Fry.it, 251 F.3d 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)(l)). PACA attempts to remedy this burden through the creation of a statutory trust:

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 ‘nonsegregated 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).

“[G]eneral. trust principles [apply] to questions involving the PACA trust, unless those principles directly conflict with PACA.” Boulder Fruit, 251 F.3d at 1271. And, because “[o]rdinary principles of trust law apply to trusts created under PACA, ... the trust assets are excluded from the estate should the dealer [i.e., the PACA trustee] go bankrupt.” Sunkist Growers, Inc. v. Fisher, 104 F.3d 280, 282 (9th Cir. 1997).

Under general trust principles, 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)). Federal regulations set forth a PACA trustee’s primary duties, requiring the trustee “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 broad, such 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)).

Because the non-segregated floating trust under PACA permits the commingling of trust assets and permits the PACA trustee to convert trust assets into proceeds, the transferees of trust assets, such as Agricap here, “are liable only if they had some role in causing [a] breach or dissipation of the trust.” Boulder Fruit, 251 F.3d at 1272; see also 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”).

Against this backdrop, the current parties and all circuit courts addressing the issue agree .that 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. See 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; Boulder Fruit, 251 F.3d at 1271-72; Endico Potatoes, 67 F.3d at 1067-68. Such a sale is merely a conversion of trust assets from accounts receivable into cash. These circuits also agree 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 ... 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 ... disgorge amounts collected on the accounts after [the distributor’s] bankruptcy filing to the extent necessary to satisfy claims of PACA trust beneficiaries.”). In fact, in Boulder Fruit, notwithstanding the absence of discussion of a “true-sale” or “transfer-of-risk” test, the Ninth Circuit provided an illustration making clear that use of PACA-trust assets as collateral to secure a debt could not create a priority security interest for a lender greater than the position enjoyed by PACA trust beneficiaries:

Farmer sells oranges on credit to Broker. Broker turns around and sells the oranges on credit to Supermarket, 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.

II. Transfer-of-Risk Test for Identifying True Sales

The treatment of true sales and security interests, therefore, is clear. What remains unclear is the analysis to apply when the true nature of the transaction is ambiguous. How should a court treat a transaction if the parties to a factoring agreement label the transaction a sale of accounts but provide substantial recourse for the factoring agent, such as requiring the distributor to “repurchase” non-performing accounts or permitting the factoring agent to withhold payments or otherwise recoup payments already made to the distributor? What if, such labels notwithstanding, the recourse and security provided include a security interest in the accounts receivable? Has a true sale actually occurred?

Growers and the Second, Fourth, and Fifth Circuits apply a threshold transfer-of-risk test to determine if such a transaction is a true sale or a mere secured lending relationship. Agricap, relying on Boulder Fruit, argues the court need only ask if -the transaction was commercially reasonable.

In Boulder Fruit, the Ninth Circuit held factoring agreements do not per se breach the PACA trust because, consistent with general trust principles, “a trustee can sell trust assets unless the sale breaches the trust.” 251 F.3d at 1272. The court concluded “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. § 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 (internal quotation marks omitted). The court indicated that whether a factoring agreement is commercially reasonable 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.

In reaching its conclusion, the Boulder Fruit panel stated the factoring agreement “actually enhanced the trust” for three reasons. Id. at 1272. First, it allowed the distributor to quickly convert accounts receivable to cash. Id. Second, in the course of performance, the distributor “actually received ... more for the accounts than the accounts would prove to be worth.” Id. And third, “a factoring discount of 20% was never shown to be commercially unreasonable.” Id. The Ninth Circuit therefore considered not only the up-front payment from factoring agent to distributor but also the actual sums paid to the distributor by the factoring agent during the course of performance of the factoring agreement. The Ninth Circuit 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 properly should be deemed a sale rather than a mere secured lending arrangement. Rather, the Ninth Circuit in Boulder Fruit merely 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 contrast, the Fourth, Fifth, and Second Circuits considered it necessary to examine the rights and risks transferred between the parties to a factoring agreement. See Nickey Gregory, 597 F.3d at 600-03; Reaves Brokerage, 336 F.3d at 414-16; Endico Potatoes, 67 F.3d at 1068-69. As the Fourth Circuit stated, “[I]f the accounts receivable were not sold but rather were given as collateral for a loan, then the accounts receivable would have remained trust assets, subject to [the factoring agent’s] security interest.” Nickey Gregory, 597 F.3d at 598 (emphasis in original). Whether the accounts receivable remained accounts or were converted into cash, however, the factoring agent’s “position with respect to that cash would have been subordinate to the claims of produce sellers while they remained unpaid.” Id. In contrast, “[i]f [the distributor] had transferred these trust assets ... by means of a sale in exchange for cash, the transaction would have been nothing more than a permissible conversion of trust assets from one form to another- — i.e., from accounts receivable into cash.” Id. at 599. If such a true sale had occurred, “the accounts receivable would no longer have remained trust assets, and the commodities sellers would not have had any claim for payment from them.” Id. at 599-600.

Nickey Gregory, 597 F.3d at 594, and Reaves Brokerage, 336 F.3d at 412,. involved factual patterns similar to the present case. Endico Potatoes involved a similar question: whether a “purchaser” of accounts was a bona fide purchaser for true value or merely a lender. 67 F.3d at 1065-66. In these cases, the courts examined the text and legislative history of PACA, as well as the regulations promulgated under PACA, to conclude Congress intended to elevate 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 noted in particular that representatives of the secured lending community had expressed concern over PACA’s likely effect upon secured lenders and the factoring industry. Nickey Gregory, 597 F.3d at 599. The court concluded that Congress nevertheless found the balance of policy interests to favor placing those lenders in a position subordinate to unpaid growers. Id.

For example, the House Report explaining the 1984 PACA amendments states:

[Purchasers/Distributors of perishable agricultural commodities] in the normal 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 focus, it becomes evident that this circuit’s focus, too, should be upon the true nature of the transactions at issue and the true nature of the parties’ roles, i.e., that of seller and buyer or that of secured lender and borrower.

Importantly, Congress not only knew it was elevating the interests of growers above the interests of secured lenders, Congress expressly found the secured lenders’ practices had been resulting in a “burden on commerce,” H.R. Rep. No. 98-543, at 4, and further found the creation of statutory trust would aid commerce. As recognized in Nickey Gregory, the American Bankers Association had testified to Congress that creation of the PACA trust would create “difficult[ies for] lenders ... in administering their secured loans.” 597 F.3d at 599. Congress nevertheless “made th[e] policy choice to make the unsecured credit extended by commodities sellers superior to the position of lenders holding a security interest in .those commodities and proceeds.” Id. The House Report stated:

The Committee believes that the statutory trust requirements will not be a burden to the 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. Prompt payments should generate trade confidence and new business which yields increased cash and receivables, the prime security factors to the money lender.

H.R. Rep. No. 98-543, at 4.

Given the remedy Congress created to address the perceived problem (creation of the trust elevating commodities sellers’ interests over lenders’ interests), given Congress’s clear concern with the relative interests of secured lenders and commodities sellers, and given the general backdrop of trust law (in particular, a trustee’s ability to sell or convert trust assets), courts must focus on the true substance of PACA-relat-ed transactions and not on superficial indicators or labels. Simply put, it runs counter to PACA and its history to permit the simple use of the words “sale” or “purchase” or “factoring agreement” to control for purposes of assessing the relative rights of lenders and produce growers.

III. Transfer of Primary or Direct Risk as the Hallmark of a True Sale

The Second, Fourth, and Fifth Circuits conclude a transfer of the primary or direct risk of non-payment on the accounts stands as 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. In addition, these courts (as well as the regulations under PACA) focus upon trust asset encumbrance and dissipation in relation to what the terms of a factoring agreement could permit rather than how the parties actually performed under a factoring 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.” (emphasis added)). This focus is important because, although a factoring agent might pay to a distributor/PACA trustee sums ■adequate for the trustee to pay the beneficiaries, and although those amounts might represent a commercially reasonable discount from the accounts’ face values, the payment of such amounts should be immaterial if (1) the trustee does not pay the beneficiaries in full; and (2) the accounts receivable and their proceeds remain trust assets.

In assessing whether a true sale occurred, the Fourth Circuit adopted the transfer-of-risk test as set forth and explained by the Second Circuit in Endico Potatoes. Nickey Gregory, 597 F.3d at 600-03. There, the Second Circuit distinguished between direct risk, on the one hand, and secondary or derivative risk, on the other. Endico Potatoes, 67 F.3d at 1068-69. The Second Circuit stated 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 concluded, “The root of all of these factors is the transfer of risk.” Id. at 1069. Finally, the court 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 nonperformance 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.

Id.

We conclude this transfer-of-risk test must apply to avoid reliance on self-serving labels inserted into factoring agreements to defeat clear congressional intent. We also conclude it follows quite naturally that it is not even possible to assess the commercial reasonableness of a factoring agreement without first understanding the true nature of the transferred risks and transferred rights. A factoring agent who accepts risk of non-payment on the transferred accounts is the owner of the accounts, for better or worse. See Nickey Gregory, 597 F.3d at 601 (“The purchaser assumes the risk of collection, betting that its success in collecting on the accounts receivable will yield a return exceeding the discounted price it paid for the asset.”); id. at 598 (“Obviously, under this scenario, [the factoring agent] would own the accounts receivable and would be able to do with them what it wished.”). 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 nonperforming 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. Common sense dictates that the price paid for the accounts with and without recourse will differ. Common sense also dictates that commercial reasonableness cannot be assessed without first examining the substance of the transaction.

Agricap nevertheless argues 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 overstates its case in characterizing such a scenario as absurd. It is merely the result of a clear policy choice set forth by Congress. In fact, such a result is not even uncommon.

To see an everyday example where a similar scenario plays out, it is only necessary to look to the relationship between general contractors, subcontractors, and property owners in the context of mechanics’ liens. It is well established beyond the need for citations 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 and faces direct exposure to the subcontractors’ claims. This is true regardless of whether the amount the property owner paid to the general contractor was sufficient to pay the subcontractors. If the subcontractors are not paid, their interests prevail over the property owner (who may seek recourse against the general contractor, but who still faces direct liability to the subcontractors). State legislatures made the policy choice to put the interests of subcontractors ahead of those of property owners. Property owners, of course, may guard against this risk by performing due diligence and ensuring subcontractors’ liens are released before making final payment to a general contractor.

Similarly, by putting the burden of due diligence on lenders rather than growers, Congress was well aware of the effect it was imposing on the lending industry. Congress concluded, however, that lenders could adapt. The House Committee expressly noted that anticipated improvements to commerce would offset the lenders’ anticipated burdens. H.R. Rep. No. 98-543, at 4 (“[T]he statutory trust requirements ... 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 is shown by examining the longstanding regulations promulgated under PACA. 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. 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, 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 protections, it cannot be the ease that a distributor and factoring agent may defeat trust beneficiaries’ rights merely by invoking the labels “sale” or “factoring agreement.”

IV. Transfer of Risk in the Factoring Agreement and in Boulder Fruit

Turning to the actual factoring agreements in the present case and in Boulder Fruit, it is helpful to describe the relationship between Tanimura and Agricap and how the parties came to enter into the Factoring Agreement.

In late 2007, Tanimura found itself facing cash flow difficulties and reached out to Agricap in an effort to “improve [Tani-mura’s] working capital situation and [Tanimura’s] ability to pay vendors.” In December 2007, Tanimura completed an application for a “factoring line” from Agricap. In response, Agricap asked for a fee to conduct due diligence and referenced the possibility of “entering into certain arrangements to provide a factoring facility.” In a “term sheet” attached to this response, Agricap referred to itself as the “lender,” referred to Tanimura as the “seller,” and referred to the “factoring facility” as a “credit facility.” It also stated Agricap would provide to Tanimura “collection services.”. From inception, then, it seems clear Agricap viewed itself as a lender providing collection services to Tan-imura rather than a true purchaser of accounts collecting for itself on the accounts it would truly own. Nevertheless, Agricap also indicated “Seller would sell to Agricap, and Agricap would purchase from Seller, all of Seller’s accounts receivable.” Agricap then investigated Tanimura’s finances and completed a “Client Credit Approval Form” dated January 8, 2008.

On February 4, 2008, Tanimura and Agricap entered into the “Agricap Financial Corporation Factoring and Security Agreement.” The Factoring Agreement provided that Agricap would “purchase” Tanimura’s accounts receivable for 80% of the face value and would hold the remaining 20% in a reserve account. Agricap would then collect on the accounts from Tanimura’s customers, pay itself a financing fee as a percentage of the face value of the accounts, and also pay itself an interest fee based upon the length of time the accounts had remained outstanding. After retaining its fees and maintaining a reserve account, Agricap would pay to Tani-mura the balance of the collected amounts.

The Factoring Agreement, however, transferred to Agricap very little in the way of primary or direct risk of nonpayment. The Factoring Agreement granted Agricap the unilateral ability to increase the reserve account (i.e., withhold payments to Tanimura of funds collected from accounts) by “such additional reserves as are deemed necessary and appropriate in [Agricap’s] sole discretion.” It also granted Agricap the ability to force Tanimura to purchase back certain accounts based upon the occurrence of certain events. For example, if a dispute arose between Tanimu-ra and a customer, Agricap could force Tanimura to repurchase the customer’s account.

Importantly, Tanimura agreed to repurchase any accounts that remained uneol-•lected after 90 days. And, in the event of Tanimura’s insolvency, the repurchase amount could be deducted from the reserve account. Agricap’s only practical risk, therefore, was possible insolvency by Tanimura at a time when the reserve account was insufficient to fund the unpaid accounts. In other words, assuming Tani-mura’s continued solvency, Agricap could obtain full recourse against Tanimura for 90-day-old unpaid accounts, and Agricap’s risk of non-payment by Tanimura’s customers was cabined to ' 90-day windows (during which Agricap received a financing fee and interest).

The parties also executed ancillary documents when entering into the Factoring Agreement. Tanimura’s principal executed a personal guarantee. Agricap took a priority interest in all of Tanimura’s assets other than inventory, filing a UCC financing statement to this effect. Also, Tanimu-ra itself and Tanimura’s other primary lender agreed to subordinate their debt to Agricap.

The parties disagree as to the actual amounts of money that changed hands between Tanimura and Agricap, but it appears undisputed that the transferred accounts exceeded $20 million and Agricap ultimately paid to Tanimura an amount in excess of 90% of the face value of those accounts.

The factoring agreement at issue in Boulder Fruit was substantially similar to the Factoring Agreement in the present case. The factoring agent in Boulder Fruit, however, was not subject to the same express limitations on the timing or reasons for forcing the PACA trustee to repurchase accounts. Rather, the factoring agreement in Boulder Fruit permitted the factoring agent to force the PACA trustee to repurchase any account the factoring agent determined, “in its sole and absolute discretion ... is or may not be fully collectible.”

Reviewing these provisions, we conclude that neither the present Factoring Agreement nor the agreement in Boulder Fruit transferred primary or direct risk of nonpayment to the factoring agents. In the absence of controlling precedent, therefore, we would hold neither agreement effected a true sale of trust assets. Rather, both were mere secured financing arrangements, as further indicated by Agricap’s descriptions of itself as “lender” and the Factoring Agreement as a “credit facility.”

In summary, Congress created a system to protect growers of fruits, vegetables, and other perishable commodities. The growers in this Circuit have effectively lost that protection due to lenders merely labeling true security agreements as factoring agreements. This is not an isolated issue in a cottage industry. Perishable agricultural commodities are a multi-billion dollar enterprise in this Circuit as well as nationwide. We would encourage an en banc court to consider bringing the Ninth Circuit into line with the other circuits that have considered this issue.

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

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

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

        Endico Potatoes, 67 F.3d at 1069.

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

      . Further, because the price of such commodities tend to rise as the commodities move through the distribution chain from grower to final customer, sales of an intermediate distributor's accounts receivable, even at a commercially reasonable discount to face value, reasonably might be expected to result in adequate funds for the PACA trustee to pay the produce growers.

      . The 20% discount at issue in Boulder Fruit as referenced above 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 caused the factoring agent ultimately to pay. The detailed terms of the factoring agreement in Boulder Fruit are addressed below.


source: Caselaw Access Project

author: PILLARD, Circuit Judge: BROWN, Circuit Judge,

license: Public Domain

text:
    NANKO SHIPPING, USA, Parent Company of Nanko Shipping Guinea, et al., Appellants v. ALCOA, INC. and Alcoa World Alumina, LLC, Appellees
    No. 15-7070
    United States Court of Appeals, District of Columbia Circuit.
    Argued September 23, 2016
    Decided March 10, 2017

      Donald M. Temple, Washington, DC, argued the cause and filed the briefs for appellants.
    Thomas E. Birsic, Pittsburgh, PA, argued the cause for appellees. With him on the brief were Matthew J. Louik and David T. Case, Washington, DC.
    Before: ROGERS, BROWN and PILLARD, Circuit Judges.
   Dissenting opinion filed by Circuit Judge BROWN.

PILLARD, Circuit Judge:

The Republic of Guinea is one of the world’s principal sources of bauxite, an aluminum ore. After Guinea declared inde-' pendence from France in the middle of the last century, it sought to ensure that the exploitation of its natural resources would not only provide business for multinational corporations based overseas that invested in the ore’s extraction, but would also benefit the Guinean economy. Plaintiff Nanko Shipping Guiñeé (Nanko) claims to be the beneficiary of one of Guinea’s legal undertakings to that end, and contends in this ease that defendants (collectively, Alcoa) violated corresponding obligations. Other named plaintiffs' — Nanko’s owners, Nanko Shipping USA and Mori Diané, an American of Guinean descent — are not before us, having not appealed the district court’s order dismissing them for lack of standing.

The district court granted Alcoa’s motion to dismiss the complaint under Federal Rule of Civil Procedure 12(b)(7) for failure to join Guinea, which Alcoa asserts is a Rule 19 required party. The district court concluded that Guinea could hot be joined because it is entitled to sovereign immunity. But it is not apparent why Guinea is a required party and, if it is, whether Nanko’s allegations bring Guinea within the commercial-activity exception to foreign sovereign immunity such that its join-der would be feasible. We accordingly reverse and remand for further proceedings.

I.

On review of the order granting the motion to dismiss, we assume — as did the district court — the truth of the facts alleged in Nanko’s proposed Second Amended Complaint. According to that complaint, in 1963 the Republic of Guinea and the Harvey Aluminum Company of Delaware (now Halco) signed an agreement estab-. lishing the Compagnie des Bauxites de Guinde (CBG) for the purpose of developing Guinea’s rich bauxite mines. CBG is a corporation of which Guinea owns a 49 per cent share and Halco 51 per cent. Nanko alleges that defendant Alcoa, in turn, is somehow both the minority owner and alter ego of Halco. Over the last half century, CBG has extracted and exported more than 600 million tons of Guinean bauxite.

Under Article 9 of the CBG Agreement, Guinea reserved the right to require that up to 50 per cent of the Republic’s bauxite be shipped on vessels flying the Guinean flag or chartered by the Guinean government, provided that the freight rates those Guinean shippers offered are no higher than, and the services equal to, those otherwise available on the international shipping market. That clause presumably was designed to ensure that some of the business generated by the bauxite mines would go to qualified Guinean shipping firms and thereby benefit the Guinean economy.

Nanko alleges that, in August 2011, Guinea entered into a Technical Assistance Agreement (TAA) with Nanko. That document is neither quoted in nor attached to the pleadings, nor is it otherwise in the record. Pursuant to the TAA, Nanko alleges, it “assumed Guinea’s rights” under Article 9 of the CBG Agreement “to manage, control and ship” up to 50 per cent of Guinean-produced bauxite. Prop. Second Am. Compl. at 2.

Later in 2011, CBG’s Board of Directors allegedly invited its constituent corporations, including Halco and Alcoa, to contact Nanko to make shipping arrangements. Nevertheless, Halco and Alcoa refused to deal with Nanko, offering “only a few limited micro-tender shipping opportunities” that were “substantially less in value and volume than the shipping rights and contracts” to which Nanko claims it is entitled under the TAA. Prop. Second Am. Compl. ¶¶ 26, 46. Halco and Alcoa allegedly added insult to injury, posing questions about Nanko’s “background and capacity” that were not asked of other shipping companies and then refusing to credit Nanko’s responses. Id. at ¶¶ 42, 65. Guinea, for its part, “repeatedly urged” Halco and Alcoa to hire Nanko to ship their bauxite. Id. at ¶ 76.

In this action, Nanko initially brought two claims: one for breach of the CBG Agreement, asserting that it is a third-party beneficiary thereof, and another for racial discrimination in violation of 42 U.S.C. § 1981. Alcoa moved to dismiss on a variety of grounds, including lack of standing, failure to state a claim, and failure to join a required party. Nanko responded with a proposed Second Amended Complaint adding Halco as a defendant and asserting an additional claim against Alcoa for tortious interference with contractual relations.

The district court dismissed the case under Rule 12(b)(7) for failure to join a Rule 19 party. Guinea was a required party under Rule 19(a), the court concluded, because resolving Nanko’s claims would depend on defining Guinea’s rights under its CBG Agreement with Halco, which might “impair or impede Guinea’s right to protect its interests” under that Agreement. Nanko Shipping, USA v. Alcoa, Inc., 107 F.Supp.3d 174, 181 (D.D.C. 2015) (“Nanko I”). Proceeding to the Rule 19(b) inquiry, the court'concluded Guinea could not be joined because it is entitled to sovereign immunity, and that the case could not “in equity and good conscience” proceed in Guinea’s absence. Id. at 181-82. Although it considered the allegations of the proposed Second Amended Complaint in its analysis, the district court denied leave to file that complaint on grounds of futility because it concluded that, even if it accepted the additional .allegations, it would still conclude that the case cannot proceed without Guinea.

The district court alternatively noted that if Guinea could be joined the case “would have to be dismissed so that the parties could proceed to mandatory arbitration.” Nanko I, 107 F.Supp.3d at 182 n.7. Because it is not clear on the present record that Alcoa (as distinct from Halco and CBG) bound itself to the relevant arbitration agreement, and because the parties have not briefed the issue, we do not here address that ground.

Nanko timely appealed and simultaneously moved the district court to reconsider its dismissal of the discrimination claim. The district court denied the reconsideration motion in an order that postdates Nanko’s notice of appeal. See Nanko Shipping, USA v. Alcoa, Inc., 118 F.Supp.3d 372 (D.D.C. 2015) (“Nanko II”). In that order, the district court said that it had dismissed the discrimination claim for failure to state a claim, though its original dismissal rested exclusively on Rule 19 grounds. We conclude that the district court’s Rule 19 holding failed to fully grapple with Nanko’s allegations and that those allegations, accepted as true, state a claim for racial discrimination under § 1981.

II.

Federal Rule of Civil Procedure 19 calls on a district court confronting a Rule 12(b)(7) motion to dismiss a case for failure to join an absent party to decide first (under Rule 19(a)) whether the absent party should be joined, and, if joinder is infeasible, to assess (under subsection (b)) whether the action among the existing parties should proceed or be dismissed in light of the missing party’s absence. We have summed up the Rule 19 inquiry as posing three questions: Should the absentee be joined, i.e., is it necessary to the litigation? If so, can the absentee be joined? And finally, if the absentee should but cannot be joined, may the lawsuit nonetheless proceed “in equity and good conscience”? W. Md. Ry. Co. v. Harbor Ins. Co., 910 F.2d 960, 961 (D.C. Cir. 1990); see Kickapoo Tribe of Indians of Kickapoo Reservation in Kan. v. Babbitt, 43 F.3d 1491, 1494 (D.C. Cir. 1995). Rule 19 promotes fair treatment of nonparties in certain circumstances where their interests, and particularly their due process rights, are at risk from litigation between others. It also seeks to avoid multiple and wasteful litigation, such as where the absence of a party would prevent the court from granting the relief sought or expose an existing party (typically the defendant) to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations. Rule 19 does not apply merely because dispute resolution would be more efficient with the non-party’s participation, nor because the pending case could yield precedent adverse to the absentee’s interests. A decision under Rule 19 “not to decide” a case otherwise properly before the court is a power to be exercised only “[i]n rare instances.” Nat’l Ass’n of Chain Drug Stores v. New England Carpenters Health Benefits Fund, 582 F.3d 30, 42 (1st Cir. 2009); see also Fort Yates Pub. Sch. Dist. No. 4 v. Murphy ex rel. C.M.B., 786 F.3d 662, 671 (8th Cir. 2015).

We review the district court’s application of Rule 19(b)’s “equity and good conscience” test for abuse of discretion, Cloverleaf Standardised Owners Ass’n, Inc. v. Nat’l Bank of Wash., 699 F.2d 1274, 1276 (D.C. Cir. 1983), but “[questions of law that inform a district court’s Rule 19 determination are reviewed de novo,” Am. Trucking Ass’n, Inc. v. N.Y. State Thruway Auth., 795 F.3d 351, 356 (2d Cir. 2015). Under Rule 12(b)(7), we accept Nan-ko’s allegations as true and draw all reasonable inferences in its favor. Paiute-Shoshone Indians of the Bishop Cmty. of the Bishop Colony, Cal. v. City of Los Angeles, 637 F.3d 993, 996 n.1 (9th Cir. 2011). We have not specifically addressed the standard of review of decisions whether an absent party is necessary and whether it cannot be joined — the first and second questions in the above triad — and we need not do so here. Under any standard of review, we cannot, on the current record, affirm the district court’s conclusion that Alcoa has shown that Guinea is a necessary party to this litigation that cannot be joined, and that the case accordingly must be dismissed.

The district court determined that Guinea is a potential party required to be joined if feasible. Guinea is a necessary party under Rule 19, the district court held, simply because “[t]he Court’s interpretation of the [CBG Agreement] may impáir or impede Guinea’s right to protect its interests” under that Agreement. Nanko I, 107 F.Supp.3d at 181. But due process protects Guinea from being bound by any judgment rendered in its absence, and it is not obvious what interests Guinea would retain in the CBG Agreement if Nanko “assumed Guinea’s rights” thereunder, as Nanko alleges. Prop. Second Am. Compl. at 2. See SEC v. Bilzerian, 378 F.3d 1100, 1108 (D.C. Cir. 2004) (absent party not required to be joined where it merely assigned rights to party). Alcoa expresses concern that the court might “construe the CBG [Agreement] in a manner inconsistent with or contrary to Guinea’s own understandings or positions, without the opportunity for Guinea to be heard.” Appellee Br. at 29. Rule 19 precedent is admittedly scant, but we agree with the Third Circuit that “the requirements, of Rule 19(a) are not satisfied simply because a judgment against Defendants in this action might set a persuasive precedent in any potential future action.” Huber v. Taylor, 532 F.3d 237, 250 (3d Cir. 2008). Insofar as the existing parties’ interests are concerned, evidence of Guinea’s actions, views, or prerogatives can be discovered and introduced where relevant to the parties’ claims and defenses even if Guinea remains a nonparty. At the current pleading stage, we do not believe the allegations can reasonably be read to show that Guinea is a necessary party.

The district court further held that Guinea could not be joined involuntarily on the ground that it is entitled to sovereign immunity under the Foreign Sovereign Immunities Act (FSIA), 28 U.S.C. § 1602 et seq. See Nanko I, 107 F.Supp.3d at 181. The FSIA “renders a foreign government ‘presumptively immune from the jurisdiction of United States courts unless one of the Act’s express exceptions to sovereign immunity applies.’ ” Bank Markazi v. Pe terson, — U.S.—, 136 S.Ct. 1310, 1317 n.1, 194 L.Ed.2d 463 (2016) (quoting OBB Personenverkehr AG v. Sachs, — U.S. —, 136 S.Ct. 390, 394, 193 L.Ed.2d 269 (2015)). Under the FSIA, a foreign state is not immune from claims “based [1] upon a commercial activity carried on in the United States by the foreign state; or [2] upon an act performed in the United States in connection with a commercial activity of the foreign state elsewhere; or [3] upon an act outside the territory of the United States in connection with a commercial activity of the foreign state elsewhere and that act causes a direct effect in the United States.” 28 U.S.C. § 1605(a)(2).

Nanko and Alcoa sparsely briefed the immunity issue before the district court. That court’s immunity holding rested exclusively on Nanko’s failure to “contest” Alcoa’s bare assertion that the court lacked jurisdiction over Guinea. See Nanko I, 107 F.Supp.3d at 181 n.6. But Nanko did contest the point. See Opp’n to Mot. to Dismiss at 24 (characterizing as “a red herring and meritless” Alcoa’s argument that “because Guinea is a foreign sovereign this Court lacks jurisdiction”). And Nanko’s motion for reconsideration argued that the court was “not in [a] position to resolve,” absent discovery, what Nanko identified as the “fact question” whether Guinea “enjoys sovereign immunity.” Mot. for Recons, at 4. Nanko’s assumption that Alcoa’s assertion of Guinea’s immunity “may be correct” is not, in context, fairly read to concede the matter. See Opp’n to Mot. to Dismiss at 25. Nor did Nanko give up the point in its motion for reconsideration by stating that the district court “properly acknowledged that it [has no] jurisdiction over ... Guinea as a sovereign entity.” Mot. for Recons, at 6 (emphasis added). That statement leaves open a critical question for FSIA purposes: whether the district court has jurisdiction over Guinea as a commercial actor.

Before this Court, Alcoa argues in a footnote that Nanko “has utterly failed to allege any facts” establishing a FSIA exception, thus failing to overcome the “presumption of immunity.” Appellee Br. at 35 n.54 (citing Bell Helicopter Textron, Inc. v. Islamic Republic of Iran, 734 F.3d 1175, 1183 (D.C. Cir. 2013)). That is not necessarily so. Most notably, Nanko alleges that the CBG Board — of which Guinea is a member — hosted a 2011 meeting in New York City at which Guinea “announced its authorization and contract award to [Nan-ko] regarding shipment of bauxite.” Prop. Second Am. Compl. ¶ 22. That alleged authorization appears to be central to Nan-ko’s theory of the case. For instance, it is that authorization on which Nanko rests its claim that defendants knew of but disregarded their contractual responsibility to deal with Nanko to ship bauxite out of Guinea. The facts as Nanko alleges them suggest that Guinea’s participation in the shipping of bauxite falls within the FSIA’s commercial-activity exception.

At this preliminary stage, based only on the pleadings, we see no adequate basis for the district court’s dismissal of the complaint under Rule 12(b)(7). With the benefit of discovery and further briefing, as appropriate, the district court may wish to revisit the Rule 19 issues. Further proceedings may help to clarify what interests of Guinea, if any, would be impaired in its absence, what role Guinea would play in this litigation if joined, and whether sovereign immunity prevents its involuntary joinder here. See In re Papandreou, 139 F.3d 247, 252 (D.C. Cir. 1998) (district courts often must “look beyond the pleadings” to decide whether an FSIA exception applies); Ilan-Gat Eng’rs, Ltd. v. Antigua Int’l Bank, 659 F.2d 234, 242 (D.C. Cir. 1981) (“[T]he court failed to consider whether more facts were needed before making the indispensable party determination given the rather unusual situation before it.”).

III.

Our dissenting colleague would hold that the complaint failed to state a section 1981 claim sufficient to withstand a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6). We disagree.

Section 1981 protects the right “to make and enforce contracts” free from racial discrimination, 42 U.S.C. § 1981(a), and the pleading standards under section 1981 track those in the familiar McDonnell Douglas rubric for alleging a prima facie casé of purposeful employment discrimination. See Patterson v. McLean Credit Union, 491 U.S. 164, 186, 109 S.Ct. 2363, 105 L.Ed.2d 132 (1989) (citing Tex. Dep’t of Cmty. Affairs v. Burdine, 450 U.S. 248, 101 S.Ct. 1089, 67 L.Ed.2d 207 (1981), and McDonnell Douglas Corp. v. Green, 411 U.S. 792, 93 S.Ct. 1817, 36 L.Ed.2d 668 (1973)); Brown v. Sessoms, 774 F.3d 1016, 1022-23 (D.C. Cir. 2014) (citing McDonnell Douglas, 411 U.S. at 802-04, 93 S.Ct. 1817). The plaintiffs initial burden “is not onerous.” Patterson, 491 U.S. at 186, 109 S.Ct. 2363. Further, discrimination against a business based on the race of its owner violates section 1981. See McClain v. Avis Rent A Car Sys., Inc., 648 Fed.Appx. 218, 222 n.4 (3d Cir. 2016); Gersman v. Group Health Ass’n, Inc., 931 F.2d 1565, 1567-70 (D.C. Cir. 1991), vacated on other grounds, 502 U.S. 1068, 112 S.Ct. 960, 117 L.Ed.2d 127, reinstated, 975 F.2d 886 (D.C. Cir. 1992). Nanko alleges that Alcoa, aware of Diané’s race, treated the company he owns and operates less favorably than similarly situated white-owned companies. See, e.g., Prop. Second Am. Compl. ¶¶ 3, 17, 57-68. By alleging those basic elements of a pri-ma facie case of intentional discrimination, Nanko raised its “right to relief above the speculative level.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007); see Brown, 774 F.3d at 1023 (plaintiff stated section 1981 claim where she “identified a similarly-situated employee who is not in her protected class and explained why she has equivalent qualifications”). The burden at the summary judgment stage and at trial is different and substantially more onerous than the pleading burden. Allegations regarding comparators, racial comments, and pretext obviously strengthen a discrimination complaint, but the evidentiary requirements the dissent identifies are inapplicable at the pleading stage.

We do not reach any of the other grounds, such as the applicability of a mandatory arbitration clause in the CBG Agreement, on which Alcoa moved to dismiss. The absence of a putative required party is not a jurisdictional question. Ilan-Gat Eng’rs, Ltd., 659 F.2d at 240. The district court accordingly may decide to address those other grounds on remand before or in tandem with further consideration of the Rule 19 issue.

For the foregoing reasons, we reverse . the district court’s dismissal of the complaint and remand for further proceedings.

So ordered.

BROWN, Circuit Judge,

dissenting:

The Court finds the question whether the Foreign Sovereign Immunities Act (“FSIA”) applies — and therefore whether jurisdictional discovery is necessary — was properly presented to the district court. Op. 465-66. Its opinion further holds the district court erred in deciding Nanko failed to state a claim upon which relief can be granted for violations of 28 U.S.C. §§ 1981 and 1985. Op. 467. I disagree on both points and respectfully dissent.

I.

The district court specifically noted, “Plaintiffs do not contest the assertion that Guinea is protected from suit by sovereign immunity.” Nanko Shipping, USA v. Alcoa, Inc., 107 F.Supp.3d 174, 181 n.6 (D.D.C. 2015) (citing Nanko’s opposition to Alcoa’s motion to dismiss). We, therefore, review Nanko’s filings in the district court to determine whether the court abused its discretion in finding the argument forfeited. See GSS Grp. Ltd. v. Nat’l Port Auth., 680 F.3d 805, 812 (D.C. Cir. 2012). It did not.

Nanko’s brief opposing the motion to dismiss contains two relevant statements:

• “Defendants claim that Guinea is an indispensable party and further allege that because Guinea is a foreign sovereign this Court lacks jurisdiction under the Foreign Soverign [sic] Immunities Act, unless a specified exception applies. This argument is a red herring and meritless. Contrary to Defendants’ contention, there is no basis for Guinea involvement given the Technical Assistance Agreement ...,” and
• “[w]hile Defendants may be correct in its [sic] view that this Court lacks jurisdiction over Guinea, Defendants miss two critical facts; as plead, the CBG and the TAA are valid legal contracts.”

Nanko Opp’n to Alcoa Mot. to Dismiss at 24-25, Nanko Shipping, USA v. Alcoa, Inc., No. 14-cv-1301, 2014 WL 4947119 (D.D.C. Sept. 25, 2014), ECF No. 11. These statements, read together and in succession, discuss whether Guinea was an indispensable party, mentioning the applicability of the FSIA only in passing. Of course, reasonable minds may differ regarding the precise interpretation of these statements, see Op. 465-66, but the district court judge did not abuse her discretion in concluding the FSIA issue was not contested. See Cement Kiln Recycling Coal. v. EPA, 255 F.3d 855, 869 (D.C. Cir. 2001) (“A litigant does not properly raise an issue by addressing it in a cursory fashion with only bare-bones arguments.”).

The majority points to Nanko’s Motion for Reconsideration filed before the district court, Op. 465-66, which does appear to discuss the FSIA. Nonetheless, “[Federal] Rule [of Civil Procedure] 59(e) motions are aimed at reconsideration, not initial consideration.” GSS Grp., 680 F.3d at 812. Accordingly, a “Rule 59(e) motion may not be used to ... raise arguments or present evidence that could have been raised prior to the entry of judgment.” 11 Charles Alan Wright et al., Federal Practice & Procedure § 2810.1, at 163-64 (3d ed. 2012). Since Nanko could have raised its FSIA argument earlier, but chose not to do so, the argument is forfeited. See District of Columbia v. Doe, 611 F.3d 888, 896 (D.C. Cir. 2010).

II.

The district court also properly dismissed Nanko’s claims pursuant to 42 U.S.C. §§ 1981 and 1985 for failure to state a claim upon which relief could be granted.

I agree with the Court’s starting premise: “Nanko alleges that Alcoa, aware of Diané’s race, treated the company he owns and operates less favorably than similarly situated white-owned companies.” Op. 467. Indeed, Nanko’s complaint recounts multiple incidents, over a three-year period, when Alcoa failed to award bids to Nanko and awarded contracts to white-owned companies instead.

But, as the majority also notes, a Section 1981 claim cannot “reach[ ] more than purposeful discrimination.” Gen. Bldg. Contractors Ass’n v. Pennsylvania, 458 U.S. 375, 388, 391, 102 S.Ct. 3141, 73 L.Ed.2d 835 (1982) (emphasis added). Accordingly, to plead a prima facie case, a plaintiff must show the defendant intended to discriminate against the plaintiff on the basis of race. See Williams v. Lindenwood Univ., 288 F.3d 349, 355 (8th Cir. 2002); Mian v. Donaldson, Lufkin & Jenrette Secs. Corp., 7 F.3d 1085, 1087 (2d Cir. 1993).

Nanko has failed to plead sufficient facts to carry that burden here. In fact, no facts presented in the complaint suggest Alcoa intentionally discriminated against Nanko on account of race. Rather, Nanko states it is an African-American owned company, see Prop. Second Am. Compl. ¶¶ 78-79, alleges Alcoa had done business with white-owned Klaveness, id. ¶¶ 17, 80, and asserts “[Alcoa] imposed certain unreasonable requirements, offered multiple limited shipping opportunities in 2012 after telling Nanko that all such bid opportunities had been contracted out and expressly stated that their decision making process would be arbitrary and subjective,” id. ¶ 82. Further, Nanko claims it used the “same exact shipping companies” as Alcoa and also “attained equal or lower shipping prices and similar assurances regarding shipping security.” Id. ¶ 87. Indeed, all of Nanko’s factual allegations are consistent with an arbitrary, but not racially discriminatory, decision-making process. Everyone can be characterized by race, and many contracting parties are “harsh, unjust, and rude,” but a failure to do business with a particular African-American individual or company does not automatically constitute a federal civil rights claim. See generally Alfano v. Costello, 294 F.3d 365, 377 (2d Cir. 2002).

The inadequacy of Nanko’s pleading is hardly surprising. Intentional discrimination may be relatively easy to plead via comparator evidence — as Nanko apparently attempts to do — in the employment discrimination context, where a plaintiff is keenly aware of his coworkers’ performance and familiar with his employers’ policies. See Brown v. Sessoms, 774 F.3d 1016, 1023 (D.C. Cir. 2014) (pleading the underlying facts necessary to rely on comparator evidence in an employment case). In the commercial context, however, it is often very difficult to plead facts raising an inference of racially discriminatory intent. See Denny v. Elizabeth Arden Salons, Inc., 456 F.3d 427, 429-31, 435 (4th Cir. 2006) (finding a viable § 1981 claim where an individual purchased a salon gift card for her mother, but the salon refused service to the mother, stating it did not “do black people’s hair”). This difficulty is systemic, but it is not for this Court to remedy policy deficiencies: “Trying to make [the statute] a cure-all not only goes beyond any expression of congressional intent but would produce satellite § 1981 litigation of immense scope.” Domino’s Pizza, Inc. v. McDonald, 546 U.S. 470, 479, 126 S.Ct. 1246, 163 L.Ed.2d 1069 (2006).

Accordingly, I would affirm the district court’s dismissal of Nanko’s claims pursuant to 42 U.S.C. §§ 1981 and 1985 for failure to state a claim upon which relief can be granted. See Nanko Shipping, USA v. Alcoa, Inc., 118 F.Supp.3d 372, 377 (D.D.C. 2015); United Bhd. of Carpenters & Joiners v. Scott, 463 U.S. 825, 833, 103 S.Ct. 3352, 77 L.Ed.2d 1049 (1983) (noting § 1985 “provides no substantial rights itself’).

      . Nanko calls this agreement a "convention,” see Appellant's Br. 2, but that term usually denotes an accord between states. The cover page of the agreement describes it as an "Agreement Between the Republic of Guinea and Harvey Aluminum Co. of Delaware.”


author: DENNIS JACOBS, Circuit Judge:

text:
    Jose LINARES-URRUTIA, Petitioner v. Jefferson B. SESSIONS, III, U.S. Attorney General, Respondent.
    Docket No. 14-4419-cv
    August Term, 2016
    United States Court of Appeals, Second Circuit.
    Argued: January 4, 2017
    Decided: March 7, 2017

      ROBERT J. MALIONEK (with George C. Chipev on the brief, Washington, D.C.), Latham & Watkins, New York, New York, for Appellant Jose Linares-Urrutia.
    M. JOCELYN LOPEZ WRIGHT (with Benjamin C. Mizer, Principal Deputy Assistant Attorney General, and Melissa Nei-man-Kelting, Senior Litigation Counsel, Office of Immigration Litigation, on the brief), for Appellee Jeff Sessions.
    Before: JACOBS, SACK, and CARNEY, Circuit Judges.

       Pursuant to Federal Rule of Appellate Procedure 43(c)(2), Attorney General Jefferson B. Sessions, III, is automatically substituted for former Attorney General Loretta E. Lynch as Respondent.

   DENNIS JACOBS, Circuit Judge:

Petitioner Jose Linares-Urrutia seeks review of a November 13, 2014 decision by the Board of Immigration Appeals (“BIA”) dismissing his appeal from the denial of applications for asylum, withholding of removal, and relief under the Convention Against Torture. An asylum claim must be filed within one year of the alien’s “last arrival” in the United States. 8 C.F.R. § 208.4(a)(2)(h). Petitioner, who was illegally present in the United States after multiple deportations, crossed into Canada by bridge, was detained four hours by the Canada Border Services Agency, and was then returned back over the bridge. This appeal presents the question whether that return counts as his “last arrival” into the United States, thus giving him an additional one year from that date to file an asylum application. This Court’s prior precedent would foreclose that result. But deference, to a subsequent BIA opinion raises a doubt that the BIA is better suited to resolve. Accordingly, we grant the petition in part and remand the case to the BIA to determine whether Linares-Urrutia’s asylum claim was timely. We dismiss the petition as to the remaining claims.

I

Linares-Urrutia is a native and citizen of El Salvador who has lived off- and-on in the United States for nearly 30 years. He first entered in approximately 1988, and was deported that same year. He illegally reentered shortly thereafter. In 1995, he was apprehended while again illegally reentering, this time from Canada, and was granted delayed voluntary departure. In 2011, the Department of Homeland Security reinstated his 1988 removal order and removed him back to El Salvador. Linares-Urrutia was convicted of four criminal offenses between his initial entry in 1988 and his 2011 removal: larceny and unlawful entry in Virginia in 1994, criminal mischief with intent to damage property in New York in 2004, and seventh-degree criminal possession of cocaine in New York in 2007.

Linares-Urrutia yet again reentered illegally shortly after his 2011 removal. Then, on April 25, 2012, he walked across the Peace Bridge from New York into Canada, apparently to seek revival of an asylum claim there. Upon entering Canada, the Canadian border authorities detained him for approximately four hours and then returned him to the United States. Linares-Urrutia has produced a document by the Canada Border Services Agency reflecting that he “Departed Canada from Ft Erie” on April 25, 2012.

The Department of Homeland Security initiated the latest of his removal proceedings in 2013. In response, Linares-Urrutia filed (pro se) a petition for asylum, withholding of removal, and relief under the Convention Against Torture. During the proceedings before the Immigration Judge (“IJ”) and the BIA, Linares-Urrutia was his only witness.

All Linares-Urrutia’s claims arise from an allegation that the Salvadoran government abused and tortured him when he was a member of a revolutionary student group in the 1980s. Linares-Urrutia testified that the Salvadoran military shot him in the leg, detained him, beat him repeatedly, applied electricity to his genitals, and threatened to kill him. Although a different regime is now in power, Linares-Urrutia said he still fears persecution if he returns to El Salvador because his fellow former revolutionaries and their families believe that he cooperated with the former regime, and will seek revenge.

On August 21, 2013, the IJ denied Li-nares-Urrutia’s claims and ordered him removed (yet again). The primary evidence Linares-Urrutia presented of his brief trip to Canada was his own testimony. Without commenting on the possible effect of his asserted brief time in Canada on the timeliness of his application, the IJ ruled that Linares-Urrutia’s asylum claim was time-barred. Linares-Urrutia did not present the Canadian border document to the IJ at this proceeding. The IJ also denied Li-nares-Urrutia’s other claims because he found that Linares-Urrutia had failed to establish either past persecution or a likelihood of future persecution if returned to El Salvador.

The BIA affirmed in part and remanded in part. It agreed with the IJ’s untimeliness conclusion, holding that Linares-Ur-rutia presented insufficient evidence to show that he visited Canada in April 2012. But the BIA held that the IJ failed to indicate sufficiently whether Linares-Urru-tia’s testimony was credible as to past persecution or a likelihood of future persecution; so it remanded to the IJ for a new credibility finding.

On remand, the IJ found that Linares-Urrutia was in fact persecuted in the 1980s based on his political opinion. The IJ also found, however, that Linares-Urrutia could not establish a likelihood that he would be persecuted in the future, nor could he establish that any potential persecution would be due to his political opinions. The IJ dismissed his claims on those grounds. While he was before the IJ on that remand, Linares-Urrutia submitted the Canadian document reflecting his visit to Canada, but the IJ did not discuss the timeliness of the asylum claim in his remand decision.

On the next appeal, the BIA agreed with all the IJ’s conclusions. It also specifically rejected Linares-Urrutia’s claim that his asylum application was timely, holding that Linares-Urrutia failed to present sufficient evidence of his trip to Canada.

This appeal followed, and we appointed' pro bono counsel to represent Linares-Urrutia.

II

We review the decisions of the IJ and BIA in tandem, and we review applications of law to fact de novo. Weng v. Holder, 562 F.3d 510, 513 (2d Cir. 2009). Because Linares-Urrutia was convicted of a controlled-substance offense, we have jurisdiction to entertain only constitutional claims and questions of law. Pierre v. Holder, 738 F.3d 39, 46 (2d Cir. 2013) (citing 8 U.S.C. § 1252(a)(2)(D)).

That jurisdictional limit disposes of most of this case. The IJ rejected Linares-Urru-tia’s claims for asylum based on future persecution, withholding of removal, and relief under the Convention Against Torture for two independent reasons: Linares-Urrutia failed to establish a likelihood of future persecution, and he failed to establish a nexus between any future persecution and a protected ground. We lack jurisdiction to hear challenges to these factual determinations, and we accordingly dismiss those portions of his appeal.

What remains is Linares-Urrutia’s claim for “humanitarian asylum” — a claim that can be made “on the basis of the past persecution without regard to any well-founded fear of future persecution,” and which is usually reserved for cases in which the past persecution was “particularly severe” or in which the applicant “may suffer other serious harm if removed.” Kone v. Holder, 596 F.3d 141, 146 (2d Cir. 2010) (internal quotation marks omitted). Since the BIA affirmed that Li-nares-Urrutia had indeed established past persecution, untimeliness is the only ground on which the BIA denied the humanitarian asylum claim.

Section 208(a)(2)(B) of the Immigration and Nationality Act requires asylum applications to be filed, “within 1 year after the date of the alien’s arrival in the United States,” 8 U.S.C. § 1158(a)(2)(B); but the implementing regulation states that, “[t]he 1-year period shall be calculated from the date of the alien’s last arrival in the United States.” 8 C.F.R. § 208.4(a)(2)(h) (emphasis added); see also Joaquin-Porras v. Gonzales, 435 F.3d 172, 174 (2d Cir. 2006).

The timeliness of this asylum application depends on whether Linares-Urrutia’s rebuffed effort to enter Canada counts as his “last arrival” into the United States. Li-nares-Urrutia filed his asylum application on April 18, 2013. He entered the United States after a significant absence in 2011; if that was his “last arrival,” his application was untimely. If his “last arrival” was his crossing of the Peace Bridge and return to the United States on April 25, 2012, then his application was timely.

If we were to apply our old precedent, this case would be easy. In Joaquin-Porras, we stated that, “the term ‘last arrival in the United States’ should not be read to include an alien’s return to the United States after a brief trip abroad.” 435 F.3d at 179. However, after we decided Joaquin-Porras, the BIA issued a decision explicitly rejecting our holding, and giving the term “its natural and literal meaning, i.e., the alien’s most recent arrival in the United States from a trip abroad.” Matter of F-P-R-, 24 I. & N. Dec. 681, 683-84 (BIA 2008).

Since the term “last arrival” appears in a BIA regulation that gives a gloss on the statutory word “arrival,” which we concluded is open to interpretation in Joaquin-Porras, 435 F.3d at 178-79, we are-compelled to give deference under National Cable & Telecommunications Association v. Brand X Internet Services, 545 U.S. 967, 982-83, 125 S.Ct. 2688, 162 L.Ed.2d 820 (2005). See also Hui Zheng v. Lynch, 632 Fed.Appx. 626, 627 (2d Cir. 2015) (summary order) (concluding that FP-R- trumps Joaquin-Porras). The BIA’s second opinion in the present case failed to apply F-P-R-’s definition of “last arrival,” so we therefore have jurisdiction to review its holding on timeliness. See Rosario v. Holder, 627 F.3d 58, 62 (2d Cir. 2010) (holding that we have jurisdiction to review the BIA’s factual determinations when they are “flawed by an error of law”). That failure does not mean, however, that Linares-Urrutia’s asylum application was necessarily timely. The F-P-R-decision — which involved a trip to Mexico of approximately a month to attend a stepfather’s funeral — does not dictate the result in this case, which involves merely being held in Canada for four hours. See F-P-R-, 24 I. & N. Dec. at 685. We therefore grant the petition in part and remand it in part for the BIA to determine, in the first instance, how F-P-R- may. apply to this case.

While the government does not contest that F-P-R- controls or that Li-nares-Urrutia was at least briefly on Canadian soil in April 2012 (the Canadian border document is presumptive proof of that), it argues that we should nonetheless affirm the BIA on technical grounds. In the initial proceeding before the IJ, Li-nares-Urrutia failed to present the Canadian border document, and the BIA therefore accepted the IJ’s determination that Linares-Urrutia failed to prove that he last arrived in 2012. However, since the BIA remanded the case to the IJ solely to consider further whether Linares-Urrutia established past persecution and a likelihood of future persecution, the government argues that the IJ properly declined to reconsider whether Linares-Urrutia “arrived” from Canada in 2012.

The government is correct that the initial BIA order set forth a purpose for the remand; but the order did not expressly limit the IJ’s ability to revisit other issues. In the absence of any such limiting language or other indicia, the scope of a remand is general. See Matter of Patel, 16 I. & N. Dec. 600, 601 (BIA 1978); Johnson v. Ashcroft, 286 F.3d 696, 703 (3d Cir. 2002) (“Under Patel, the Immigration Judge’s jurisdiction is narrowed only when the remand order is qualified or limited, which ... must be more than a statement of purpose alone.”). So even if we were inclined to reject a pro se litigant’s asylum claim on this technical ground, the government’s argument fails. The question whether Linares-Urrutia crossed the Canadian border was thus properly before the IJ on remand, and the Canadian immigration document was part of the record that the BIA should have considered in deciding, under F-P-R-, whether Linares-Urrutia “arrived” on April 25, 2012.

Ill

Finally, the construal of the statutory word “arrival” and of the term “last arrival” in the regulations would benefit from clarification by Congress. We would adhere to this Circuit’s precedent in Joaquin-Porras but for the BIA’s opinion in F-PR-, which is itself problematical and could easily be read to produce absurd results. This case exemplifies the problems that will ensue absent a statutory fix. One possible fix would be a set period of absence as a predicate to arrival, and other measures would doubtless occur to Congress.

CONCLUSION

For the foregoing reasons, the petition for review is GRANTED in part and DISMISSED in part, arid the case is REMANDED to the BIA for proceedings consistent with this opinion.