113 F.3d 1091 (9th Cir. 1997), 95-55864, In re Coupon Clearing Service

Docket Nº:95-55864.
Citation:113 F.3d 1091
Party Name:97 Cal. Daily Op. Serv. 3775, 97 Daily Journal D.A.R. 6407 In re COUPON CLEARING SERVICE, INC., Debtor. FOOTHILL CAPITAL CORPORATION, Appellant, v. CLARE'S FOOD MARKET, INC.; Shoprite of Oakland, Inc.; Brown's Super Stores, Inc.; Singers Supermarkets, Inc.; Glass Gardens, Inc.; Shop-Rite at 26th St., Inc.; Shoprite of Lincoln Park, Inc.; Big V Supe
Case Date:May 20, 1997
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit
 
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Page 1091

113 F.3d 1091 (9th Cir. 1997)

97 Cal. Daily Op. Serv. 3775,

97 Daily Journal D.A.R. 6407

In re COUPON CLEARING SERVICE, INC., Debtor.

FOOTHILL CAPITAL CORPORATION, Appellant,

v.

CLARE'S FOOD MARKET, INC.; Shoprite of Oakland, Inc.;

Brown's Super Stores, Inc.; Singers Supermarkets, Inc.;

Glass Gardens, Inc.; Shop-Rite at 26th St., Inc.; Shoprite

of Lincoln Park, Inc.; Big V Supermarkets, Inc.; Shoprite

of Hunterdon County, Inc.; Shop-Rite of Clinton, Inc.;

Shoprite of Carteret, Inc.; Inserra Supermarkets, Inc.;

Shoprite of Perth Amboy, Inc.; Nutley Park Shop-Rite, Inc.;

Sunrise Market, Inc.; Racar, Inc.; Trio Food Centers,

Inc.; Perlmart, Inc.; Village Supermarkets, Inc.;

Brookdale Shoprite, Inc.; Bliss, Inc.; Shop-Rite of

Pennington, Inc.; Shoprite of Parsippany; Shoprite of

Little Falls, Inc.; Landis Supermarkets, Inc.; Delsea

Supermarkets, Inc.; Grade A Market, Inc., Appellees.

No. 95-55864.

United States Court of Appeals, Ninth Circuit

May 20, 1997

Argued and Submitted Aug. 6, 1996.

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Robert H. Stopher, Santa Ana, California, for debtor.

Clifford J. Meyer, Buchalter, Nemer, Fields & Younger, Newport Beach, California, for appellant.

Alan M. Mansfield, William S. Dato, William S. Lerach, Milberg Weiss Bershad Hynes & Lerach, San Diego, California, Dennis J. Block, Weil, Gotshal & Manges, for appellees.

Appeal from the United States District Court for the Central District of California, Linda H. McLaughlin, District Judge, Presiding. D.C. No. SACV-94-936-LHM.

Before: FLETCHER and TASHIMA, Circuit Judges, and RESTANI, [*] United States Court of International Trade Judge.

RESTANI, Judge:

This matter arises from a dispute between plaintiffs-appellees Clare's Food Market, Inc., et. al. ("the ShopRite Retailers") and defendant-appellant Foothill Capital Corporation ("Foothill") over the entitlement to the proceeds of cents-off coupons which were redeemed by the Chapter 7 debtor, Coupon Clearing Service, Inc. ("CCS"). CCS was a coupon clearing house to which retail stores and chains submitted coupons in bulk. In turn, CCS was to pay the ShopRite Retailers for the coupons within a prescribed number of days. Foothill extended a revolving line of credit to CCS and now claims entitlement to the coupon proceeds by reason of its security interest in CCS's inventory, equipment, and accounts. The ShopRite Retailers, however, contend that the coupon proceeds belong to them and CCS could not assign the proceeds to Foothill as CCS was their agent, or otherwise held the coupons and proceeds as trustee or bailee for them.

The bankruptcy court concluded that Foothill's perfected security interest in the coupon proceeds had priority over the interests of the ShopRite Retailers. The district court, however, found that numerous issues of material fact existed which precluded the entry of summary judgment for either party, vacated the bankruptcy court's order, and remanded for further proceedings. Foothill appeals the district court's order.

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We exercise jurisdiction over this appeal and reverse the district court's order vacating the bankruptcy court's opinion. Further, we affirm the bankruptcy court's opinion and order granting summary judgment to Foothill.

FACTS 1

In accordance with supermarket industry practices, customers presented the ShopRite Retailers with manufacturer coupons 2 to receive a reduction in the purchase price of certain products. For honoring the coupons, the manufacturers would reimburse the ShopRite Retailers the reduction in the purchase price of the products, along with a handling fee. In order to facilitate the processing of the large volume of coupons submitted to the ShopRite Retailers by their customers, the manufacturers permitted the ShopRite Retailers to use the services of approved coupon clearinghouses. CCS operated as such a clearinghouse.

To redeem the coupons, the ShopRite Retailers would ship the coupons to CCS. Upon receipt of the coupons, CCS would record the number, weight, amount, and identity of which retailer sent the coupons. CCS then would assign a "batch number" to each shipment of coupons, weigh the shipment, and send an acknowledgment to the retailer, disclosing the date of receipt, batch number, and weight. The coupons would then be sent to Cupomex, CCS's Mexican affiliate, for sorting, counting, tagging, and bundling. CCS would prepare an invoice for the manufacturer which identified the retailer by name and address, the number of coupons, the face value, and the total handling fee. Each coupon bundle and invoice would then be sent to the appropriate manufacturer.

Upon receipt, the manufacturer would count the coupons, verify that the coupons had been properly redeemed by the retailer, and pay CCS the redemption and handling fee payment. The manufacturer would also forward to CCS a list of retailers submitting coupons, the number of coupons, and the amounts paid for the coupons. If some coupons were not redeemable, the manufacturer would specify the retailer's name, number of coupons, dollar amounts, and reasons for non-redemption.

As a condition of accepting coupons from CCS, many manufacturers required CCS to enter into clearinghouse authorization agreements ("Clearinghouse Agreements"). 3 The invoices sent to the manufacturers by CCS, however, stated that all rights to the coupon proceeds had been assigned to CCS and that all payments were to be remitted to CCS.

Most of the ShopRite Retailers entered into contracts setting forth the terms governing their relationships with CCS ("Service Agreements"). The Service Agreements uniformly provided that CCS would advance to the retailers the amount equal to the face value of the coupons plus the handling fee, less CCS's service fee (typically one to two cents per coupon processed) and any chargeback on coupons that CCS had previously paid, but were not honored by the manufacturer. 4

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4 The Service Agreements also provided that: (1) CCS was entitled to keep the proceeds of the checks from the manufacturers; (2) CCS had the sole right to process the coupons; (3) any funds remitted directly to the retailers were to be turned over to CCS; and (4) the retailers were required to reimburse CCS for any chargebacks. The Service Agreements did not classify CCS as the retailers' agent. In 1991, however, CCS distributed an advertising brochure to the ShopRite Retailers in which it referred to itself as the ShopRite Retailers' agent.

The parties agree that there was never a sale of the coupons to CCS. The Service Agreements, however, varied regarding CCS's right to assign an interest in the coupon proceeds. There were three distinct types of Service Agreements. The Service Agreements entered into with Mid-Atlantic and Rocky Mountain provided that CCS would submit and invoice the coupons on the clients' behalf and did not contain any provisions regarding CCS's right to assign the coupons or the coupon proceeds. The Service Agreements entered into with Dan's, Clare's, Lawson, Woolworth, and Scrivner's provided that the coupons were deemed assigned to CCS. The Service Agreements entered into with Mars and C & K specifically granted CCS the right to assign and hypothecate or otherwise encumber the coupons and proceeds.

On November 4, 1988, Foothill extended a revolving line of credit to CCS up to the lesser of $10,000,000 or 75% of CCS's accounts receivable. CCS carried the amounts due from the manufacturers on its books as accounts receivable. In connection with the line of credit, Foothill filed financing statements to perfect its security interest. Pursuant to CCS's agreement with Foothill, all payments from the manufacturers were forwarded directly to a lockbox at Foothill's bank in Chicago. Foothill was authorized to open the correspondence addressed to CCS, separate the checks from the manufacturers, and send copies of the checks and the other documentation to CCS. Foothill applied the payments from the manufacturers to CCS's obligations under the loan agreement.

PROCEDURAL HISTORY

In October 1991, after CCS failed to reimburse the ShopRite Retailers for $4 million in coupons, the ShopRite Retailers filed an action against CCS, Foothill, and others in the California Superior Court. The ShopRite Retailers obtained a temporary restraining order and a preliminary injunction imposing a constructive trust on the coupons and proceeds therefrom. In November 1991, CCS filed a Chapter 7 bankruptcy petition and thereafter, Foothill removed the case to federal bankruptcy court.

In November 1993, after extensive discovery, the ShopRite Retailers and Foothill (as well as other retailers involved in other adversary proceedings who have since settled their claims against Foothill) filed cross-motions for summary judgment. The Trustee joined in Foothill's motion and opposed the ShopRite Retailers' motion. After hearing the motions, the bankruptcy court issued a memorandum opinion which embodied its findings of fact and conclusions of law on April 1, 1994. In an order dated March 31, 1994, the bankruptcy court granted Foothill's motion for summary judgment and concluded: (1) CCS and the ShopRite Retailers did not have an agency relationship, the assignments were not for collection purposes only, and CCS did not hold coupon proceeds in trust for the ShopRite Retailers; (2) CCS had sufficient rights in coupon proceeds under California commercial Code § 9203(1) to grant Foothill a valid security interest and Foothill's interest attached to the proceeds; and (3) CCS did not need to be licensed as a collection agency and thus, the service Agreements between the ShopRite Retailers...

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