In re Coop De Consumidores Del Noroeste

• Decision Date: 13 January 2012
• Docket Number: No. 09–08645.,09–08645.
• Citation: 464 B.R. 525
• Parties: In re COOP DE CONSUMIDORES DEL NOROESTE, Debtor.
• Court: U.S. Bankruptcy Court — District of Puerto Rico

464 B.R. 525

In re COOP DE CONSUMIDORES DEL NOROESTE, Debtor.

No. 09–08645.

United States Bankruptcy Court, D. Puerto Rico.

Jan. 13, 2012.

Edgardo Mangual Gonzalez, San Juan, PR, for Debtor.

OPINION AND ORDER

ENRIQUE S. LAMOUTTE, Bankruptcy Judge.

This case is before the court upon the request by Trafon Group, Inc., formerly known as Encinal, Inc. d/b/a Starmeat (hereafter referred to as “Trafon” or “Creditor”) for payment of amounts owed, claiming to be the beneficiary of a statutory trust under the Packers and Stockyards Act of 1921, as amended (“PASA”). The Chapter 7 Trustee (hereinafter referred to as “Trustee”) opposed the request and filed a motion for summary judgment alleging that Trafon failed to comply with certain requirements that must be concurrently satisfied under the PASA provisions, 7 U.S.C. § 196, mainly; (i) Trafon is not a livestock and/or live poultry cash seller in conformity with 7 U.S.C. § 196(b) and § 197(d); and (ii) Trafon failed to preserve its statutory trust due to its lack of notification to the Debtor and to the Secretary of the United States Department of Agriculture within the mandatory time frame (within the thirty day period of the final date established for making payment to the cash seller of livestock) in conformity with 7 U.S.C. §§ 196(b) and 197(d), and 9 C.F.R. § 203.15 (Docket No. 295). Trafon filed its opposition to the Trustee's motion for summary judgment arguing the following: (i) whether Trafon sold “livestock” as defined under PASA to Debtor is a genuine issue of material fact that precludes the granting of Trustee's motion for summary judgment; (ii) Trafon preserved its trust under 7 U.S.C. § 228(b), given that this section, “... allows for the parties to effect payment in another manner so long as the parties expressly agree in writing;” (iii) “[i]n the case at hand, the parties agreed that the seller retains a trust claim over the commodities sold until full payment is received. All the invoices at issue specifically stated: ‘[t]he seller of these commodities retains a trust claim over these commodities, all inventories of food or other products derived from these commodities and any receivables or proceeds from the sales of these commodities and any receivables or proceeds from the sales of these commodities until full payment is received;” and (iv) “[c]onsidering that it was stipulated on the invoices that the seller retains a trust claim over the commodities sold ‘until full payment is received,’ such provision constitutes an agreement to make payment in another manner. In the present case, the thirty days of the final date for making payment began when the Debtor filed Bankruptcy and Trafon was put on notice that they will not receive payment.” (Docket No. 329). The Trustee filed his reply to Trafon's opposition to the motion for summary judgment (Docket Nos. 332 & 341). For the reasons set forth below the Trustee's motion for summary judgment is hereby granted.

Facts and Procedural Background

Cooperativa de Consumidores del Noroeste filed a bankruptcy petition under Chapter 7 of the Bankruptcy Code on October 9, 2009. The Debtor included Trafon (Star Meat Inc.) in Schedule F (Creditors Holding Unsecured Nonpriority Claims) as an unsecured creditor in the amount of $46,505.80. The Debtor included in line item number four (4) of its Statement of Financial Affairs a lawsuit for collection of money in the state court of Aguadilla (Case No. A1CI2009–00872) in which Trafon Group Corp. H/N/C Starmeat is the plaintiff. On October 19, 2009, the Trustee filed a Notice of Assets and Request for Claims Bar Date informing that there are assets in this case which are expected to result in a dividend to creditors, and requested the Clerk of the Court to set and notice a bar date for filing claims (Docket No. 6). On October 27, 2009, the Clerk of the Court gave notice to creditors informing that assets have been recovered by the Trustee and that creditors must file a proof of claim by January 25, 2010 (Docket No. 11). The 341 meeting of creditors was scheduled for November 4, 2009 and was continued and held on December 1, 2009. The Trustee requested that the case be held open for potential asset recovery (Docket Nos. 4, 23 & 42). On January 29, 2010, Trafon filed proof of claim # 126–1 for an unsecured claim in the amount of $46,456.12 which was incurred from March 27, 2009 to May 13, 2009.

On October 25, 2010, Trafon filed a motion requesting the Trustee to pay the invoices owed. Trafon alleges that it is a PASA trust beneficiary based on the following: (i) that during the period of March 27, 2009 through May 12, 2009 it supplied livestock, livestock products, poultry and poultry products to the Debtor; (ii) on January 29, 2010, Trafon filed a proof of claim in the amount of $46,456.12 for unpaid invoices of which it claims $41,776.33 is protected by PASA, and as a beneficiary of the PASA statutory trust, it has priority over creditors and over lenders to which packers have given a security interest in packer's inventory and receivables subject to such trust; and (iii) Safeway Stores, Inc. v. Freeman, 369 F.2d 952 (D.C.Cir.1966), recognized that retail stores such as the one debtor operated where meat and meat products are processed for sale are considered “packers” within the meaning of PASA (Docket No. 212).

The Chapter 7 Trustee (hereinafter referred to as “Trustee”) filed on October 26, 2010 his opposition to Trafon's Motion Requesting Order Instructing the Trustee to Pay PASA Trust Beneficiary presenting the following arguments: (i) the proof of claim filed by Trafon (claim # 126–1) specified that it was an unsecured creditor and it failed to specify that it was protected by the PASA trust; (ii) Trafon is commencing a proceeding pursuant to Fed. R. Bankr.P. 7001(1), (2) and (9), thus these actions must be initiated by an adversary proceeding; (iii) Debtor is not a “packer” as defined by 7 U.S.C. § 191 ¹, and thus Trafon does not have a valid PASA trust claim; (iv) Safeway Stores, Inc. v. Freeman, 369 F.2d 952, is distinguishable from the instant case due to the specifics of the operations and processing activities of the Safeway supermarket chains; (v) Trafon fails to describe the actual activity Debtor engaged in which is within the scope of PASA; and (vi) the products Trafon sold to Debtor were already processed when they arrived at Debtor's stores as evidenced by the invoices (Docket No. 216).

On November 22, 2010, Trafon filed its reply to the Trustee's opposition to its motion requesting an Order instructing the Trustee to pay it as a PASA trust beneficiary, arguing the following: (i) that pursuant to the case of In re Frosty Morn Meats, Inc., 7 B.R. 988 (Bankr.M.D.Tenn.1980) an adversary proceeding is not required to adjudicate whether Trafon's claim is protected by a PASA trust; (ii) the Trustee's emphasis on the case of D & W Food Centers, Inc. v. Block, 786 F.2d 751 (6th Cir.1986) is misguided because that decision was rendered based on the particular facts of that case which are different from the facts in the instant case; (iii) the nature of the Debtor's operation is important to determine whether it is a “packer” under PASA, thus an evidentiary hearing may be necessary for the court to adjudicate whether Debtor is a packer under the PASA provisions; and (iv) Debtor “... engages in the processing of products beyond ‘those needed to prepare them for display’ ” (Docket No. 216, paragraph # 32) since Debtor cuts and repackages the meat and meat products it receives from Trafon (as shown in the photographs enclosed as Exhibits 1–8 in Docket No. 230) into smaller portions for re-sale to third parties (Docket No. 230).

On December 1, 2010, the Trustee filed a motion for leave to file sur-reply and extension of time due to the following: (i) the transactions that give rise to this claim originated when the Debtor was under its original administration which was subsequently substituted by Corporation Publica para la Supervision y Seguro de las Cooperativas de Puerto Rico (“COSSEC”) in June 2009; and (ii) the Trustee will request the dismissal of this action because the original administrator and COSSEC are not part of this proceeding as required by Fed. R. Civ. Proc. 12 & 19 (Docket No. 235). On December 2, 2010, this court granted the Trustee's request for a thirty (30) day extension to file his sur-reply to Trafon's reply to the Trustee's opposition (Docket No. 239). On December 30, 2010, the Trustee filed its sur-reply arguing the following: (i) an adversary proceeding should be initiated pursuant to Fed. R. Bankr.P. 7001(1), (2) and (9) to obtain a declaratory judgment on the validity of Trafon's claim regarding the legal existence of the alleged PASA trust; (ii) the factual and legal circumstances in In re Frosty Morn Meats, Inc., 7 B.R. 988 differ significantly from the present case, given that; (a) the adversary proceeding in the case of reference was brought forth as a class action; (b) both parties had stipulated facts and briefs of law regarding the statutory trust and specific amounts for claims under 7 U.S.C. § 196; and (c) a trust had already been established; (iii) Trafon fails to describe the actual activity that would place Debtor within the scope of PASA; (iv) Debtor clarifies that no “manufacturing or preparing of meat or meat product” was ever carried out within its market facilities; (v) contrary to what Trafon has stated in their reply, Trustee does not admit that Debtor was engaged in “some processing of the products” (Docket No. 216, paragraph 32). The actual sentence was, “[a]s this Honorable court can notice there was little or no process of the products except for those needed to prepare them for display;” (vi) “... Trafon would cut, pack and deliver the meat straight to each of Debtor's individual supermarket facilities from which in turn Debtor would sell the meat and meat products solely and directly to...