In re John Clay and Co., Inc.
| Citation | 43 BR 797 |
| Decision Date | 15 June 1984 |
| Docket Number | Bankruptcy No. 83A-01323. |
| Parties | In re JOHN CLAY AND COMPANY, INC., Debtor. |
| Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Utah |
Steven R. Bailey, Ogden, Utah, trustee acting pro se.
Robert Clark, Salt Lake City, Utah, for Manterola, Arriaga, Wilaha, and Enchandi.
David C. West, Salt Lake City, Utah, for Auza.
J. Kent Holland, Salt Lake City, Utah, for Uhalde.
Gary F. Kennedy, Salt Lake City, Utah, for Aetna.
Robert Merrill and Thomas Berggren, Salt Lake City, Utah, for CSB.
Certain creditors in this case have moved the court to reconsider its Memorandum Opinion of January 23, 1984. The issue addressed in that opinion and again here is whether certain claims of sheep producers made against the debtor's estate constitute pre-petition debts deserving unsecured claim priority or whether they constitute post-petition debts deserving administrative expense priority. In its original decision, this court interpreted and applied the Packers and Stockyards Act, 1921, ("Packers Act") (7 U.S.C. § 181, et seq.). In their motions to reconsider, movants argue that they were not accorded due process of law because they did not receive ample and timely notice of, and therefore did not have sufficient opportunity to brief and fully litigate, the legal theory predicated upon the Packers Act.
This dispute originates in the vast and arid stretches of Arizona's sheeplands. There John Clay & Co. ("debtor") has for over 20 years been engaged in the business of purchasing livestock on a commission basis from sheep producers and selling them to packers and stockyard dealers. The debtor's Arizona agent and buyer was Raymond C. Williams.
Beginning on April 7, 1983, and continuing until May 19, 1983, the debtor, through Williams, purchased sheep from the sheep producers on the following list which also sets forth the delivery dates and the sales prices for each transaction relevant to this case:
Date of
Sheep Producer Delivery Sales Price
Frank Zubeldia 5/2/83 $ 2,399.95
John Errea 5/4/83 68,846.40
Wilaha Sheep 5/7/83 2,199.76
Frank Zubeldia 5/8/83 1,748.70
Albert Urbeltz 5/8/83 2,725.92
Wilaha Sheep 5/9/83 155,473.06
Auza Brothers, Inc. 5/11/83 62,582.80
Manterola Sheep Co. 5/11/83 39,228.64
Wilaha Sheep 5/11/83 5,325.80
Manterola Sheep Co. 5/13/83 85,037.96
Long Tom Sheep 5/15/83 15,850.00
Tony Enchandi 5/16/83 25,707.68
Jean Arriaga 5/16/83 62,643.56
Auza Brothers, Inc. 5/16/83 93,631.16
Ernest Uhalde 5/17/83 9,517.80
Ernest Uhalde 5/19/83 5,323.80
Jean Arriaga 5/19/83 24,334.30
Auza Brothers, Inc. 5/19/83 5,978.78
Jean Arriaga 5/19/83 2,181.55
Tony Enchandi 5/19/83 1,949.25
___________
Total $672,686.87
In each of the above transactions (except those involving Ernest Uhalde, which shall be addressed in the next paragraph), the debtor entered into an oral contract with the sheep producer approximately three weeks before the debtor obtained delivery of the sheep. In each transaction, the same general procedure was used to effect delivery of the livestock: Independently owned and operated trucks arrived at the sheep producer's place of business on a predetermined schedule. The sheep were then sorted, segregated into age groups, and loaded onto trucks which were driven to the weigh station. At the weigh station, the stock were weighed, weigh tickets and invoices were prepared, and the total dollar amount of each transaction was calculated. In most instances the debtor presented, at the weigh station, a draft, representing payment for the purchase, to each sheep producer. In a few instances, the debtor later mailed the draft to the seller. The drafts were drawn on the debtor's account with Commercial Security Bank ("CSB"), which, as a result of the debtor's filing of its petition under Chapter 11, subsequently dishonored them and returned them unpaid to the sheep producers.
With regard to the May 17 and 18 Uhalde transactions, the debtor contracted with that rancher approximately two days before obtaining delivery of the sheep on May 17, 1983. Delivery took place in the manner described above. But the procedure by which Uhalde was paid differed from the other transactions. Payment for the May 17 transaction was made, not by draft from the debtor, but directly from the ultimate buyer, John F. Griggs, in the form of a check for $9,517.80 (the exact amount of the purchase price) made payable to Ernest Uhalde and John Clay. Uhalde's May 19 transaction, however, was made in the same manner as all the other transactions listed above, i.e., by a draft from the debtor.
At present none of the sheep producers, including Ernest Uhalde, has been paid anything whatsoever for these sales. Approximately $500,000.00, representing the proceeds from these transactions, is being held by the bankruptcy trustee.
During the period when these transactions were being negotiated and finalized, the debtor, unbeknownst to any of these sheep producers, was preparing to file a bankruptcy petition. On May 11, 1983, while sheep were being delivered to the debtor in Arizona by Auza Brothers, Inc. ("Auza"), Wilaha Sheep Co. ("Wilaha"), and Manterola Sheep Co. ("Manterola"), the debtor filed its Chapter 11 petition in this the United States Bankruptcy Court for the District of Utah, in Salt Lake City. The filing occurred in Utah at 1:56 p.m., Mountain Daylight Time. In Arizona, where the citizens are less concerned with saving daylight, the time of filing was 12:56 p.m., Mountain Standard Time. This time differential is critical to the determination of which of the May 11 transactions occurred pre-petition and which occurred post-petition.
On May 31, 1983, debtor's chapter 11 case was converted to a case under chapter 7.
Between June 9 and June 30, 1983, motions for determination, allowance, and authorization to pay administrative expenses were filed by Auza, Manterola, Jean Arriaga ("Arriaga"), and Antonio and Eva Enchandi ("Enchandi"). Objections to these motions were lodged by CSB and by Aetna Life & Casualty Insurance Co. ("Aetna").
On July 1, 1983, a hearing was held before this court on these motions and objections.1 This hearing was ultimately continued to August 8, 1983, in order to allow for the filing of all claims similar to those made by the sheep growers present. However, in the interest of justice and for the convenience of those who had traveled to Salt Lake City from Arizona, the court allowed witnesses Auza and Manterola to be examined and cross-examined on the record.
On July 11, 1983, Wilaha filed its motion for determination and allowance and authorization to pay an administrative claim. This motion was objected to by Aetna.
On August 8, 1983, the hearing, continued from July 1, was reconvened.2 Testifying were witnesses Raymond C. Williams, Ernest Uhalde, and Philipe Perez of Wilaha. The court then heard some arguments and asked counsel present to file, within 30 days, written briefs and other papers pertinent to the issues raised at the hearing. The court also ordered the drafts to Uhalde to be deposited by the trustee into a separate account pending this court's final ruling on these motions.
On August 17, 1983, Uhalde responded to certain objections that pointed out his failure to formally file a motion for allowance of an administrative expense.
On September 8, 1983, the trustee sought an extension of time in which to file his written brief.3
On or about September 22, 1983, six briefs were filed, one by each of the following: (1) Uhalde; (2) Auza; (3) Manterola, Arriaga, Wilaha, and Enchandi, collectively, ("Manterola, et. al."); (4) CSB; (5) Aetna; and (6) the trustee. The first three of these briefs each contained full arguments on the applicability of the Packers Act. The latter three contained no such arguments, but asserted, instead, that the legal theories predicated upon that Act had not been properly noticed and were not properly before the court.
On September 29, 1983, Uhalde belatedly moved for a determination and allowance of his claim as an administrative expense (apparently to forestall objections to his failure to file a formal motion and to cure any defect in the record); and, on October 3, 1983, he also moved, presumably in the alternative, for a determination that the check written by Griggs to Uhalde and Clay as well as the drafts written by Clay to Uhalde be deemed not to constitute property of the bankruptcy estate. CSB objected to these motions.
On October 11, 1983, CSB further moved this court to strike out the arguments of Auza and Manterola, et. al., on the Packers Act theory. On October 24, Auza responded to this objection. On November 15, the trustee also filed a motion to strike these same arguments.
With a fulsome record before it, this court, with due consideration to the evidence and the arguments of counsel, wrote, signed and entered its Memorandum Opinion of January 23, 1984, in which it found that the Packers and Stockyards Act, 1921, applied to the issues raised in this case and concluded that the debtor was a "market agent" within the meaning of that Act and that, while the debtor may hold legal title to the proceeds of the above listed transactions with sheep producers, nevertheless, the beneficial interest to these proceeds belonged to the sheep producers and did not constitute...
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