Gotham Provision Co., Inc., In re
| Citation | 669 F.2d 1000 |
| Decision Date | 11 March 1982 |
| Docket Number | No. 80-5682,80-5682 |
| Parties | In re GOTHAM PROVISION COMPANY, INC., Debtor/Debtor in Possession, The FIRST STATE BANK OF MIAMI, Appellant, v. GOTHAM PROVISION COMPANY, INC., et al., Appellees. . Unit B * |
| Court | United States Courts of Appeals. United States Court of Appeals (5th Circuit) |
Taylor, Brion, Buker & Greene, Robert J. Paterno, James Carl Pilkey, Miami, Fla., for appellant.
Mershon, Sawyer, Johnston, Dunwody & Cole, Timothy J. Norris, Miami, Fla., for appellees.
Papy, Poole, Weissenborn & Papy, Sheridan Weinstein Weissenborn, Coral Gables, Fla., for Robbie Addison.
Anthony J. Steinmeyer, Al J. Daniel, Jr., Civ. Div., U. S. Dept. of Justice, James M. Kelly, Atty., Dept. of Agriculture, Washington, D. C., for amicus curiae (U. S.).
Shutts & Bowen, Don A. Lynn, Miami, Fla., for W. D. Roberts.
Broad & Cassel, Martin L. Sandler, Miami, Fla., for Ronnie Perkins and Rogers Farm, Inc.
Appeal from the United States District Court for the Southern District of Florida.
Before MORGAN, TJOFLAT and ANDERSON, Circuit Judges.
This appeal presents the first opportunity for a court of appeals to construe the trust provisions of the 1976 amendments to the Packers and Stockyards Act of 1921 ("the Act"), 7 U.S.C.A. § 181 et seq. (West 1980). In the aftermath of numerous bankruptcies of meat packers in the early 1970's, Congress amended the Packers and Stockyards Act to provide certain livestock producers with some means to ensure that they would receive payment for livestock sold to packers. Section 206 of the amended Act, 7 U.S.C.A. § 196 (West 1980), 1 requires that packers who purchase livestock on a cash basis hold such livestock and accounts receivable and proceeds derived from the resale of the livestock in trust for the benefit of unpaid cash sellers.
This case arose from the financial demise and bankruptcy of Gotham Provision Co., Inc. ("Gotham"), a meat packer. The First State Bank of Miami ("the Bank") entered into a financing arrangement with Gotham on November 9, 1976, whereby the Bank would advance funds to Gotham and take as collateral a security interest in Gotham's inventories, accounts receivable and proceeds from the sale of meat. Gotham's financial fortunes turned for the worse in 1978; the Bank was aware of Gotham's financial problems. Ultimately, Gotham filed a Chapter XI petition in bankruptcy on March 9, 1979. Approximately one month prior to the filing of the bankruptcy petition, the outstanding balance due to the Bank on the Gotham loan was $450,000, and, by March 16, 1979, seven days after the filing of the bankruptcy petition, this amount was reduced to $112,324.19. At that time, the bankruptcy judge, at the request of the United States Department of Agriculture ("USDA") ordered that all future collections of accounts receivable be held in escrow. This escrow account contained $74,439.85 at the time of the trial in the bankruptcy court below.
Several livestock producers who had allegedly made cash sales of cattle to Gotham during February, 1979, were left unpaid, and they notified Gotham and the Secretary of Agriculture ("Secretary") of their intent to preserve their rights under the trust provisions of the Packers and Stockyards Act. The Bank thereafter instituted an adversary proceeding in the bankruptcy court to determine the validity, priority and extent of the lien it claimed on the escrow account by virtue of its security interest in the accounts receivable. The Bank named Gotham and certain livestock producers, including D. R. Kilpatrick ("Kilpatrick"), Lykes Brothers, Inc. ("Lykes"), Ronnie Perkins ("Perkins"), W. D. Roberts ("Roberts"), Billie Rogers Farm ("Rogers"), United States Sugar Corporation ("U. S. Sugar"), Robbie Addison ("Addison"), W & D Dairy and W. Garcia as defendants. The latter two defendants did not make an appearance in the bankruptcy court, and their claims to the escrow account were extinguished by the bankruptcy judge. The other defendants answered by alleging that the trust provisions of the Packers and Stockyards Act gave them priority over the escrow funds. In addition, they filed a counterclaim against the Bank to recover the additional amounts necessary to compensate them fully for the cash sales of cattle made to Gotham on the theory that the funds used to decrease Gotham's loan balance were subject to the trust created by § 206 of the Packers and Stockyards Act.
The bankruptcy judge held that the livestock producers were cash sellers as defined by the Act and were thereby entitled to the protection of § 206. The judge further held that the floating pool of trust assets to which these producers held a valid claim included both the escrow account and the money used to decrease Gotham's debt to the Bank. Thereby, the bankruptcy judge ruled that the producers had priority over the escrow funds and that they should recover against the Bank on their counterclaims. The district court affirmed.
On appeal to this court, the Bank raises several claims of error. First, it argues that the court below erred by holding that the livestock producers were cash sellers. Second, the Bank argues that even if the producers are cash sellers, the statute should not be construed to allow these producers to have priority over the Bank's security interest in the accounts receivable and to force the Bank to remit to them moneys derived from the accounts receivable which had been applied to reduce Gotham's debt to the Bank. Finally, the Bank argues that certain parties should not be permitted to take advantage of the trust provisions of the Act since these parties did not properly file their claims in accordance with the Act. We reverse the judgment below pertaining to appellee Perkins and remand for further findings on the filing issue. We reject each of the other arguments raised by the Bank and therefore affirm with respect to all other appellees.
Congress clearly limited the application of the trust provisions of § 206 of the Packers and Stockyards Act to transactions where:
(1) The commodities sold are "livestock," as defined in § 2(a) of the Act, 7 U.S.C.A. § 182 (West 1980);
(2) The purchaser of the livestock is a "packer" as defined in § 201 of the Act, 7 U.S.C.A. § 191 (West 1980);
(3) The transaction is a "cash sale";
(4) The cash sellers have not received full payment for their livestock;
(5) The packer in question makes average annual purchases of more than $500,000; and
(6) The cash sellers have preserved the trust within the required period by giving notice to the packer and by filing that notice with the Secretary of Agriculture.
Where each of these conditions has been satisfied, the packer is required to hold in trust for the benefit of unpaid cash sellers any livestock purchased in cash sales, inventories of meat or other products derived from such livestock, and accounts receivable or proceeds obtained through the sale of these items by the packer.
The Bank's first argument is that the § 206 trust does not arise in this case because the transactions in question in this case are not cash sales. We find this assertion to be without merit. The Act itself provides specific guidance for the determination of whether a transaction is a cash sale. Subsection (c) of § 206 defines a "cash sale" to be "a sale in which the seller does not expressly extend credit to the buyer." 7 U.S.C.A. § 196(c) (West 1980) (emphasis added). Section 206 itself does not indicate what constitutes an express extension of credit, but § 409 of the Act, 7 U.S.C.A. § 228b (West 1980) provides some assistance. 2 Section 409 requires that purchasers of livestock pay the seller the full amount of the purchase price before the close of the next business day following the purchase and transfer of possession of the livestock, or, if the transaction is on a "grade and yield" basis, before the close of the next business day following the determination of the purchase price. 3 However, § 409(b) allows the parties to effect payment in another manner so long as the parties expressly agree in writing, in accordance with the terms and conditions specified by the Secretary of Agriculture, to such a financing arrangement. In essence, § 409 of the Act presumes that all livestock sales are cash sales unless the parties expressly agree in writing to make the transaction a credit sale. Read in this context, the language of § 206 defining "cash sales" to include all sales where the seller has not expressly extended credit contemplates that unless the parties clearly agree in writing to a credit arrangement, the transaction is a cash sale. 4
The legislative history of the 1976 amendments supports this view. The Senate Committee on Agriculture and Forestry recognized that § 409 would be critical to determining whether a transaction was a cash or credit sale. Discussing the statutory provision found in § 409(a) allowing the parties to modify in writing the terms of payment established in § 409(a), the Committee stated:
Nothing in section 7 would preclude a packer and a producer from agreeing in writing that the packer may transmit through the mails, by the close of the next business day, payment for livestock purchased. Such action would not result in the producer being considered a credit seller. If, however, the agreement is for payment beyond the close of the next business day, the producer would be considered a credit seller and as such would forfeit his rights under the trust.
S.Rep. No. 932, 94th Cong., 2d Sess. 12, reprinted in (1976) U.S.Code Cong. & Ad.News 2267, 2278. Since the "agreements" referred to in this excerpt are required by § 409(b) to be in writing, Congress clearly intended that a writing specifying terms of payment which extended beyond the time allowed in § 409(a) would establish that the transaction is a credit sale. Likewise, where the parties made no such writing, payment would be due within the two-day...
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