Gargiulo v. G.M. Sales, Inc.

• Decision Date: 19 December 1997
• Docket Number: No. 96-3646,96-3646
• Citation: 131 F.3d 995
• Parties: 11 Fla. L. Weekly Fed. C 913 Harllee GARGIULO, NT Gargiulo, LP,Regency Packing Co., Gadsden Tomato Co., Quincy Tomato Corp., Plaintiffs-Appellees, v. G.M. SALES, INC., Robert Gary Mackey, Bank of Immokalee, Defendants, First Bank of Immokalee, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 995

131 F.3d 995

11 Fla. L. Weekly Fed. C 913

Harllee GARGIULO, NT Gargiulo, LP,Regency Packing Co. Gadsden Tomato Co., Quincy Tomato Corp. Plaintiffs-Appellees, v. G.M. SALES, INC., Robert Gary Mackey, Bank of Immokalee, Defendants First Bank of Immokalee, Defendant-Appellant.

No. 96-3646.

United States Court of Appeals Eleventh Circuit.

Dec. 19, 1997.

John E. Spiller, Boardman & Spiller, P.A., Immokalee, FL, Carol L. Cox, Mishan, Sloto & Greenberg, Miami, FL, for Appellants.

Lawrence H. Meuers, Scott Teach, Meuers, Dressler & Keaton, LLP, Naples, FL, for Quincy and Gadsden.

Appeal from the United States District Court for the Middle District of Florida.

Before HATCHETT, Chief Judge, EDMONDSON and COX, Circuit Judges.

HATCHETT, Chief Judge:

In this case, a bank challenges the district court's judgment requiring it to disgorge funds that it received in breach of a statutory trust established under the Perishable Agricultural Commodities Act of 1930. We reverse the judgment of the district court and remand the case for further proceedings.

BACKGROUND

Appellant First Bank of Immokalee (the bank) extended a revolving line of credit for $200,000 to G.M. Sales, Inc. (GMS), for GMS's use in its produce purchasing and reselling business. ¹ GMS secured the loan with its accounts receivable. The bank initially gave GMS, as advances against the credit line, seventy to eighty percent of the amount of GMS's customer invoices of which the bank approved. The principal of the loan was payable on demand, with the interest due monthly.

GMS customers made all of their payments on GMS's accounts receivable--including those on which the bank did not advance credit--directly into a post office box (the lock box), to which only the bank had a key. The bank deposited the checks into GMS's checking account on a daily basis. With regard to the payments for invoices that the bank had advanced GMS credit, the bank then debited GMS's account for the amounts advanced as principal loan payments. GMS paid the interest directly to the bank each month. Raymond Holland, the bank's vice president, testified during his deposition that the bank established the lock-box procedure before he began working for the bank in late January 1994.

In the spring of 1994, due to concerns about the credit worthiness of GMS's customers, the bank changed its credit policy with regard to GMS, further limiting the number of customers on whose invoices the bank would advance GMS funds. In April 1994, Holland had a conversation with Gregg Biada, an agent of appellee NT Gargiulo, LP (NTG), during which Biada told Holland that NTG was considering increasing GMS's credit line. Holland gave deposition testimony that Biada wanted to obtain a recent financial statement on GMS, and that Biada told him that NTG had previously allowed GMS a credit increase from $75,000 up to $300,000 or $400,000. Holland testified that it was his impression that GMS was still current on its credit with NTG at the time of the conversation. Holland also asserted that it was not until a month later that Biada informed him that NTG had declined to increase GMS's line of credit. ² In addition, around this time, a bank customer informed the bank that GMS had failed to pay him for a debt that it owed. GMS, however, disputed this debt.

Beginning in the spring of 1994, GMS became delinquent in its payments to its produce suppliers--appellees Harllee-Gargiulo, Inc. (Harllee); Gadsden Tomato Company (Gadsden Tomato); Quincy Tomato Corporation (Quincy Tomato); and NTG (collectively, appellees). ³ Between June 14, 1994, and August 8, 1994, appellees sent notices to GMS and the United States Department of Agriculture to preserve their rights to trust assets pursuant to the Perishable Agricultural Commodities Act of 1930 (PACA), 7 U.S.C. §§ 499a-499s. Until July 19, 1994, however, the bank continued to receive principal payments on GMS's loan--totaling $387,000--through the lock box and interest payments in the amount of $4,235.40. On August 11, 1994, GMS made a final payment to the bank In November 1994, appellees brought this action pursuant to the PACA, seeking, among other things, disgorgement of the loan payments that the bank received from GMS in breach of the PACA trust. The bank moved for summary judgment on the ground that it was a bona fide purchaser for value without notice of GMS's breach of the trust, and thus GMS's loan payments were free of appellees' PACA claims. Appellees also moved for summary judgment. In October 1996, the district court denied the bank's summary judgment motion and entered judgment in favor of appellees.

of $30,000, thereby satisfying its loan. Finally, on September 29, 1994, the bank received a letter from appellees' counsel advising it of appellees' PACA trust claims (the September 1994 letter). It is undisputed that GMS was never in default on the loan.

The district court found that (1) GMS's monthly loan repayment schedule began on June 21, 1993; (2) in the spring of 1994, GMS was past due on its loan payments to the bank; (3) around the same time, the bank changed its policy with regard to GMS and reduced the advances from eighty percent to seventy percent per approved invoice; (4) thereafter, the bank established the lock box to collect payments directly from GMS customers to pay down GMS's loan; and (5) the bank subsequently abandoned the scheduled repayment plan and began to debit GMS's checking account with no consistency as to timing or amount. The district court stated that while no actual default had occurred, the bank, pursuant to its secured loan agreement, diverted PACA trust assets to accelerate the loan repayments. The court also found that when Biada spoke to Holland to get a credit reference for GMS, Biada explained to Holland that GMS was seeking a credit extension, although it was already delinquent in paying NTG approximately $300,000. Holland then gave Biada an unfavorable financial report on GMS. The court thus concluded, among other things, that (1) the bank was not a bona fide purchaser because the loan payments were not "for value," i.e., they were not received in the ordinary course of business; and (2) the bank was aware of GMS's financial troubles and knew or should have known of GMS's breach of the PACA trust. The court awarded Harllee $60,834.50, Gadsden Tomato $79,856.00, NTG $199,767.50, and Quincy Tomato $29,775.00. Appellees moved for an award of prejudgment interest, which the court granted at the rate of 12 percent per annum, calculated from September 29, 1994--the date the bank received appellees' notice of their PACA claims--to October 28, 1996. The court also awarded appellees costs in the amount of $3,678.00.

ISSUE

The sole issue we discuss is whether the district court erred in granting summary judgment in favor of appellees.

CONTENTIONS

The bank contends that it received the payments from GMS in the ordinary course of the repayment of GMS's loan, and thus, the payments were "for value." The bank points to the following as errors in the district court's findings of fact: (1) the lock box was used before the spring of 1994; (2) the lock-box procedure was the routine method of receiving principal loan payments, which were never made in monthly installments; (3) GMS was never delinquent in its loan payments and was never in default on the loan; (4) the evidence is unclear whether the bank changed the amount that it advanced to GMS from eighty percent to seventy percent; and (5) the bank never exercised its rights under the security agreement against GMS's accounts receivable.

In addition, the bank argues that genuine issues of material fact exist as to (1) whether it had a duty of inquiry with regard to GMS's financial status; (2) if so, whether it conducted a reasonable inquiry; and (3) whether such an inquiry would have disclosed the breach of the trust. The bank asserts that when the facts are viewed in the light most favorable to it, they do not support the proposition that the bank knew, before it received the September 1994 letter, that GMS was experiencing financial difficulties. The bank also alleges that even if a duty of inquiry did arise, it inquired about GMS's financial status in the spring of 1994, and GMS never Appellees respond that the bank was not a bona fide purchaser because it did not receive the trust assets in the ordinary course of business, and thus the transfers were not "for value." Appellees contend that the bank enforced its security agreement with GMS through controlling the lock box--and thereby controlling payments from GMS customers on the accounts receivable--and through directly contacting GMS customers with regard to when the bank could expect to receive certain invoice payments. In addition, appellees assert that the bank should have known of GMS's breach of the PACA trust because the record contains evidence that the bank was aware of GMS's financial difficulties and the PACA itself provides "statutory notice" of such a breach. Appellees also allege that the bank failed to satisfy its duty to inquire whether GMS's loan payments constituted a breach of the trust, and that such an inquiry would have revealed GMS's breach.

responded. Additionally, the bank contends that the facts demonstrate that a reasonable inquiry would not have revealed any breaches of the PACA trust before June 14, 1994, when Harllee sent GMS the first PACA trust notice. Finally, the bank asserts that even if GMS had disclosed its receipt of the PACA trust notices from appellees, nothing would have indicated to the bank that GMS could not pay the claims as well as its debt to the bank, when GMS's account contained, until August 1994, funds in excess of the PACA claims. Thus, according to the bank, only the August payments from GMS, if any, are subject to disgorgement.

DISCUSSION

We review the district court's grant of summary judgment de novo, applying the same legal standard as the...