Freehling v. Michigan Repacking and Produce Company

Decision Date27 May 1970
Docket NumberNo. 28228.,28228.
Citation426 F.2d 989
PartiesHerbert FREEHLING, as Trustee in Bankruptcy of Gulfstream Farm Packers, Inc., and Gulfstream Farms, Inc., Plaintiffs-Appellees, v. MICHIGAN REPACKING AND PRODUCE COMPANY, and Sam Ortisi, et al., Defendants-Appellants.
CourtU.S. Court of Appeals — Fifth Circuit

Raymond E. LaPorte, Miami, Fla., for Michigan Repacking and Produce Co. and Ortisi.

Frank & Strelkow, Charles Neustein, Miami Beach, Fla., for Horton Purchasing Co.

Frank Ragano, Miami, Fla., Goldberg & Lloyd, Fred M. Goldberg, Louisville, Ky., for defendants-appellants.

John L. Britton, Miami, Fla., for plaintiff-appellee Freehling.

Before GODBOLD, DYER and MORGAN, Circuit Judges.

PER CURIAM.

The bankrupts, Gulfstream Farm Packers, Inc., and Gulfstream Farms, Inc., were engaged in growing tomatoes in Florida.

Michigan Repacking and Produce Company and Horton Purchasing Company, corporate appellants, were customers and creditors of the two bankrupt corporations. There are two individual appellants. Sam Ortisi was a stockholder, officer and director of Michigan Repacking and of the two bankrupt corporations. Al Horton was a stockholder, officer and director of Horton Purchasing and of the bankrupt corporations.

Appellant corporations made periodic advances of money to the bankrupts extending over a period of several months. These advances were partially repaid, not in cash but by a series of shipments of tomatoes, the product of the bankrupt's farms, from time to time made to appellant corporations. There was evidence in the District Court that it is usual for packers and shippers of tomatoes to advance growers, such as the bankrupt corporations, to have assured supplies of tomatoes, with the advances repaid by credits against later billings for tomatoes as received from the growers.

The District Court allowed the trustee recovery against the appellants, corporate and individual, of all these repayments, made by the bankrupts to the corporate appellants in the form of tomato shipments.

The trustee proceeds under § 70(e) of the Bankruptcy Act, 11 U.S.C. § 110(e), and the Florida statute, F.S.A. § 608.55. Section 70(e) invalidates as against the trustee any transfer by a bankrupt which is voidable under state or federal law by a creditor of the bankrupt. There is no claim of fraud. The claim is that there has been a preference voidable under Florida law. We set out in the margin § 608.55.1 The trustee asserts there was a preference under the second sentence of § 608.55, for which, under the third sentence, the appellant corporations are accountable. And, presumably, he claims that the individual appellants are liable under the last sentence of the section.

The District Judge found that the bankrupt corporations were insolvent under the standards of Florida law because unable to pay their debts in the ordinary course of business, Williams v. American Crafts, Inc., 129 So.2d 165, 168 (Dist.Ct. App., Fla.1961), and that the insolvency was known to all appellants. He found that during the period appellant corporations were being paid by tomato shipments other creditors were not paid. He concluded, relying upon Blank v. Yoo Hoo of Florida Corp., 213 So.2d 464 (Dist. Ct.App., Fla.1968), vacated on another ground, 222 So.2d 420 (Fla.1969), that the fact that each appellant corporation received a greater portion of its debt than other creditors of the same class created a preference. The District Court applied an erroneous standard of law, which requires that the case be remanded for consideration under a correct standard.

F.S.A. § 608.55 was originally enacted in 1925. It was based on an earlier New York Statute. Denmark v. Ridgell Furniture Co., 117 Fla. 244, 157 So. 489 (1934). When Florida enacted the New York statute it also adopted "any known and settled construction that had been placed thereon by the courts of the state from which it was adopted, in so far as that construction is not inharmonious with the spirit and policy of our own general legislation on the same subject." Duval v. Hunt, 34 Fla. 85, 15 So. 876, 882 (1894); Williams v. American Crafts, Inc., supra. Any New York case decided after Florida's enactment of the statute in 1925 is persuasive authority. Williams, supra.

Like its New York ancestor, the Florida statute declares that transfer of things of value by an insolvent corporation is void when made "with the intent of giving a preference to any particular creditor over other creditors of the corporation." The Second Circuit, in construing these words, specifically rejected the contention that any payment by an insolvent to a creditor was necessarily an intentional preference, and held that "intent to prefer" is present only when payments are made in contemplation of insolvency and winding up of the business as an impending fact. Intent to prefer is not present when such payments are made with the good faith intention of continuing in business. Cardozo v. Brooklyn Trust Co., 228 F. 333, 334 (2d Cir. 1915). This construction has been followed in numerous New York cases both before and after the 1925 Florida statute: Karasik v. People's Trust Co., 252 F. 324 (E.D.N.Y.1917); Matters v. Manufacturers' Trust Co., 54 F.2d 1010 (2d Cir. 1931); Bielaski v. National City Bank of New York, 58 F.2d 657 (S.D. N.Y.1932); Todarelli v. Visigraph Typewriter Mfg. Co., 34 F.Supp. 762 (S.D. N.Y.1940). We are shown nothing to indicate that the pre-1925 New York interpretation has been rejected by Florida as not harmonious with its legislation on the subject, or that the persuasive effect of the post-1925 New York cases should be ignored.

This case is clearly distinguishable from the intent case cited by the District Court, Blank v. Yoo Hoo of Florida Corp., supra. In Blank the facts permitted no conclusion other than an intent to prefer: the insolvent sold all its principal assets, then used the proceeds to pay one creditor. A good faith intent to continue in business could not have been present since there was nothing left for the corporation to continue in business with. Payment to one creditor necessarily foreclosed payment to any others since the payment...

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5 cases
  • Telefest, Inc. v. Vu-TV, Inc.
    • United States
    • U.S. District Court — District of New Jersey
    • 6 Agosto 1984
    ...particularly true where, despite some indicia of insolvency, the transferor continues its business, see Freehling v. Michigan Repacking and Produce Company, 426 F.2d 989 (5th Cir. 1970), because the circumstance that liabilities exceed assets does not necessarily lead to the conclusion of i......
  • In re Armstrong
    • United States
    • U.S. Bankruptcy Court — Eastern District of Arkansas
    • 4 Marzo 1998
    ...Mechanics' & Metals National Bank v. Ernst, 231 U.S. 60, 34 S.Ct. 22, 58 L.Ed. 121 (1913) (Holmes, J.); Freehling v. Michigan Repacking & Produce Co., 426 F.2d 989, 991 (5th Cir.1970). The same holds true for actions by the trustee under section 548 of the Bankruptcy Code. Acequia, Inc. v. ......
  • Dimond v. Linnecke
    • United States
    • Nevada Supreme Court
    • 27 Septiembre 1971
    ...Gleisch, 3 F.Supp. 709 (E.D.N.Y.1932); Davis v. Seneca Falls Mfg. Co., 17 F.2d 546 (2nd Cir. 1927), and Freehling v. Michigan Repacking and Produce Company, 426 F.2d 989 (5th Cir. 1970); In Re Mobilift Equipment of Florida, Inc., 415 F.2d 841 (5th Cir. In light of such interpretation of the......
  • James Talcott, Inc. v. Crown Industries, Inc.
    • United States
    • Florida District Court of Appeals
    • 3 Diciembre 1975
    ...and wind up its business, then the corporation was insolvent within the meaning of the statute. Freehling v. Michigan Repacking and Produce Co., 5th Cir. 1970, 426 F.2d 989 (applying Florida law); Cardozo v. Brooklyn Trust Co., 2d Cir. 1915, 228 F. Appellees finally contends that the trial ......
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