Apricot Producers of California v. Sacramento Foods, Inc.
| Decision Date | 02 October 1989 |
| Docket Number | No. 88-15316,88-15316 |
| Citation | 887 F.2d 1089 |
| Parties | Unpublished Disposition NOTICE: Ninth Circuit Rule 36-3 provides that dispositions other than opinions or orders designated for publication are not precedential and should not be cited except when relevant under the doctrines of law of the case, res judicata, or collateral estoppel. APRICOT PRODUCERS OF CALIFORNIA, a nonprofit corporation Plaintiff-Appellant v. SACRAMENTO FOODS, INC., a California corporation Defendant-Appellee |
| Court | U.S. Court of Appeals — Ninth Circuit |
Before POOLE, REINHARDT and O'SCANNLAIN, Circuit Judges.
Appellant Apricot Producers of California ("APC") is a non-profit cooperative agricultural association which markets apricots on behalf of its grower members. Appellee Sacramento Foods, Inc. ("SFI") was a processor of agricultural products, and is now a debtor in possession under Chapter 11 of the Bankruptcy Code. Appellee Rheem Manufacturing Co. ("Rheem") manufactures and sells large drums to be used for storing processed agricultural products. APC appeals from the district court's affirmance of two orders issued by the bankruptcy court. One order required APC to pay $72,680 to Rheem. The second order denied the APC's motion for relief from stay to offset.
Rule 8013 of the Rules of Bankruptcy Procedure specifies that the bankruptcy courts's findings of fact shall be accepted on appellate review unless clearly erroneous, but conclusions of law are reviewed de novo. This standard of review does not change if a trial court relies, as in this case, solely on a written record as it determines the facts upon which judgment is ultimately entered. Nicholson v. Board of Education of Torrance Unified School District, 682 F.2d 858, 864 (9th Cir.1982). However, because the bankruptcy court "engaged in the regrettable practice of adopting the findings of the prevailing party wholesale, we review its findings with special scrutiny." Sealy, Inc. v. Easy Living, Inc., 743 F.2d 1378, 1385 n. 3 (9th Cir.1984) (internal quote omitted).
The interpretation of a contract is a mixed question of law and fact. When the lower court's decision is based on an analysis of the contractual language and an application of the principles of contract interpretation, the decision is reviewed de novo. Miller v. Safeco Title Ins. Co., 758 F.2d 364, 367 (9th Cir.1985).
The parties agree that the issues presented should be resolved under California law.
This case arises from the bankruptcy of debtor/appellee SFI, a processor of agricultural products which filed for Chapter 11 on May 14, 1986. Prior to that date, SFI had entered into several contracts with apricot growers, both individually and through APC, the growers' non-profit agricultural cooperative, to process apricots for sale. Pursuant to a contract signed by APC, SFI purchased and processed apricots from the 1984 harvest ("the 1984 contract"), but defaulted on its financial obligations, failing to pay for all of the apricots delivered by the growers. An "Agreement Between Signatories of Joint Bank Account Respecting Release and Use of Proceeds Therein" signed on February 5, 1986 attempted to resolve the conflicting financial interests of both SFI and the growers.
As part of this agreement, and , APC agreed to pay the amount of $72,680 owed by SFI to Rheem, a manufacturer of drums for the storage and processing of apricots, from the funds received from the sale of the 1985 "custom pack" product. 1 Rheem had sold drums to SFI for storing processed agricultural products and the "custom pack" product was stored and sold in drums supplied by Rheem. The parties do not dispute that Rheem sold its drums to SFI while retaining a security interest in them to secure the purchase price, nor that SFI perfected Rheem's security interest by executing UCC-1 statements in July of 1985.
During the post-petition period, SFI sought and obtained an order of the bankruptcy court directing APC to pay the debt owed to Rheem. APC opposed the order and sought a setoff of the $72,680 debt to Rheem against the $400,000 which SFI still owed APC under the 1985 contract. The bankruptcy court concluded that setoff was not available because (1) there was no mutuality between SFI and APC with respect to the debt; (2) APC held the proceeds from the sale of the product processed under the custom pack agreement in trust for Rheem; (3) APC was estopped from denying that it held the proceeds in trust; and (4) when the custom pack growers purchased from SFI the drums supplied by Rheem, the drums remained subject to Rheem's security interest. Thus, the bankruptcy court denied APC's motion and ordered APC to pay Rheem. APC appealed to the district court, which affirmed the order of the bankruptcy court. APC again appealed.
APC argues that the bankruptcy court erred on each of the four grounds it gave for denying appellant growers' motion for setoff. As the district court correctly noted, the bankruptcy court's order denying setoff must be affirmed if any one of these issues is resolved in favor of SFI. 2 We will consider each in turn.
I. Was there mutuality of debt between SFI and APC, so that a setoff of debts would be available?
The Bankruptcy Code allows, with certain exceptions, a creditor of a Title 11 debtor to offset a mutual debt to the extent allowable under state law. 11 U.S.C. Sec. 553. The allowance or disallowance of a setoff is a decision which is generally left to the sound discretion of the bankruptcy court. In Re Bacigalupi, Inc., 60 Bank. 442, 445 (Bankr. 9th Cir.1986). However, if the requirements of 11 U.S.C. Sec. 553 are met, the remedy of setoff should be allowed "unless the court finds after due reflection that allowance would not be consistent with the provisions and Mutuality requires that the debts and credits be owed between the same parties acting in the same capacities. In Re Visiting Home Services, Inc., 643 F.2d 1356, 1360 (9th Cir.1981). 3 "Only claims to and from the same creditor and in the same capacity may be setoff" under the terms of 11 U.S.C. Sec. 553 (former Sec. 108). In the Matter of Vehm Engineering Corp., 521 F.2d 186, 190 (9th Cir.1975) (emphasis in original).
purposes of the Bankruptcy Code as a whole." Id. No such finding was made in this case, nor, we believe, would one be warranted
APC assumed a debt owed by SFI to Rheem under the terms of a contract signed February 5, 1986. There is no dispute that APC assumed this obligation on behalf of or as agent for its member growers (among whom are "the 1985 co-pack growers"), and accordingly that debt is owed by the growers to SFI. The dispute in this case centers on whether the debt owed by SFI on the 1984 contract is owed to APC or to the growers. This depends on whether APC, in entering into the 1984 contract with SFI, acted as an independent corporation or rather as agent for its member growers.
SFI argues that nothing in the 1984 contract indicated that the individual growers who sold through APC had a right to individually enforce the 1984 contract against SFI or that SFI could enforce the contract against the individual growers. The bankruptcy court agreed with SFI and concluded that there was no mutuality between these parties because APC acted in different capacities on the two occasions: on its own behalf in 1984, and as agent for the growers in 1986.
Appellant APC argues that mutuality of debt did exist between the debtor-processor and the growers, because the distinction between the corporate entity and the growers is of no consequence. APC contends that under the terms of the 1984 contract between APC and SFI, APC was acting merely as the agent for the individual growers, who were thus entitled to enforce the contract. We agree. 4
The question before us is resolved by construing the language of the two contracts involved. The preamble to the 1984 contract explicitly stated that APC was the exclusive sales agent for the processing of apricots by the growers. The contract also recited that APC did not first purchase the apricots from its member growers for resale. Moreover, the contract required SFI to account for apricot deliveries on an individual grower basis. Thus, the terms of the 1984 contract establish that it was between the growers and SFI, with APC acting merely as agent for the growers. Moreover, the express language of the 1984 contract shows that APC's purpose in executing the agreement was merely to act as an intermediary between the growers as individuals and the processing and marketing industries, and "to save [to the Processor] the labor and expense of soliciting orders or contracts from the individual growers of apricots." Although APC did not explicitly sign the 1984 contract as agent for the growers, the language of the contract clearly establishes that that was indeed its role. 5
In summary, the district court and the bankruptcy court failed to give full effect to the terms of the 1984 contract. Because there is no dispute that APC acted as agent for the growers in signing the 1986 contract, there is mutuality of debt between APC and SFI. Accordingly, setoff could be available under 11 U.S.C. Sec. 553.
II. Did APC take the proceeds of the 1985 custom pack sales subject to a trust and become a creditor holding a fund subject to a fiduciary duty, thus forfeiting its right to offset such fund against SFI's obligation?
Notwithstanding our conclusion that mutuality of debt exists between APC and SFI, setoff will not be available to SFI if APC took the proceeds of the 1985 custom pack sales subject to a trust in favor of Rheem. Although California courts have been very reluctant "to superimpose fiduciary duties upon parties engaged in purely commercial dealings," under California law a contract will give rise to a fiduciary relationship where a party to...
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