In re Lombardo Fruit and Produce Co.

• Citation: 107 BR 952
• Decision Date: 13 December 1989
• Docket Number: Adv. No. 89-0177-BSS.,Bankruptcy No. 89-01101-BSS
• Parties: In re LOMBARDO FRUIT AND PRODUCE COMPANY, Debtor. TOM LANGE COMPANY, INC. and Pupillo Brokerage, Plaintiffs, v. LOMBARDO FRUIT AND PRODUCE COMPANY and Uni-Fin Corporation, Defendants.
• Court: United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — Eastern District of Missouri

107 B.R. 952 (1989)

In re LOMBARDO FRUIT AND PRODUCE COMPANY, Debtor.

TOM LANGE COMPANY, INC. and Pupillo Brokerage, Plaintiffs, v. LOMBARDO FRUIT AND PRODUCE COMPANY and Uni-Fin Corporation, Defendants.

Bankruptcy No. 89-01101-BSS, Adv. No. 89-0177-BSS.

United States Bankruptcy Court, E.D. Missouri, E.D.

December 13, 1989.

Stephen P. McCarron, Steven H. Kerbel, Silver Spring, Md., Richard A. Ahrens, David Rubin, St. Louis, Mo., for Tom Lange Co. and Pupillo Brokerage Co.

Scott A. Greenberg, Clayton, Mo., for Gary Lombardo.

David A. Sosne, Clayton, Mo., trustee.

Jerome I. Kaskowitz, Clayton, Mo., Jeffrey Blumenthal, Chicago, Ill., for Uni-Fin Corp.

MEMORANDUM OPINION AND ORDER INTRODUCTION

BARRY S. SCHERMER, Bankruptcy Judge.

On July 17, 1989, plaintiff, Tom Lange Company, Inc. (hereinafter "Lange"), filed a complaint against Defendant, Uni-Fin Corporation (hereinafter "Uni-Fin"), seeking to preserve and enforce trust benefits as an unpaid seller of perishable agricultural commodities under the Perishable Agricultural Commodities Act (hereinafter "PACA"), 7 U.S.C. § 499a et seq. Uni-Fin holds a first perfected security interest in all of the Debtor's accounts receivable and proceeds. On November 21 and 22, 1989, the matter was tried before this Court. Uni-Fin claims that Lange failed to comply with the requirements necessary to preserve its trust benefits under the PACA statute and thus is not a short-term creditor within the meaning of the statute.

JURISDICTION

This Court has jurisdiction over the subject matter of the proceeding pursuant to 28 U.S.C. §§ 151, 157, 1334 and Local Rule 29 of the United States District Court for the Eastern District of Missouri. This is a "core proceeding" which the Court may hear and determine pursuant to 28 U.S.C. § 157(b)(2)(B).

FACTS

Between June 2, 1988 and March 7, 1989, Lange sold $308,895.75 of produce to the Debtor (hereinafter "Lombardo") for which it has not received payment. The above amount is the sum of seventy-seven (77) unpaid invoices. Sixteen (16) of these invoices were part of trading account number 143 (hereinafter "Number 143"). The remaining sixty-one (61) invoices relate to sales made to Lombardo under Lange's trading account number 466 (hereinafter "Number 466"). The balance owed on Number 143 is $63,965.70, while the remaining unpaid balance for Number 466 is $244,930.05.

I. Number 143

From mid-1986 to July 2, 1988, Lange sold produce to Lombardo under Number 143. All unpaid invoices in controversy under account Number 143 are dated between June 2, 1988 and July 2, 1988. As with all Lange invoices, each of the sixteen in question contained a box entitled "Description of Terms", which set forth the time in which Lombardo had to pay for the products covered by the invoice. All but two of the sixteen invoices state that the terms were "45 DAYS FROM SHIPMENT".

Lange also had the practice of sending its customers weekly statements of account, which reflected outstanding invoices on which the customer had not made payment. The weekly statements reflected both invoices on which payment was currently due and invoices on which payment was overdue and the date after which current invoices became overdue. All of the weekly statements of account issued by Lange in connection with Number 143 from October 15, 1986 to April 25, 1989 stated "INVOICES 45 DAYS PAST INVOICE DATE ARE OVERDUE".

Notwithstanding the terms on the invoices or the weekly statements, Lange contends that its payment terms with Lombardo under Number 143 were thirty (30) days from date of shipment. Lange's contention is premised upon a letter from Lange to Lombardo, dated January 11, 1988, which states that "our credit terms are net 30 days, on or before, from the date of shipment." The letter was signed as "acknowledged by" William Schulz, Lombardo's President, on January 13, 1988. However, in the twenty-nine (29) years prior to the time that Lombardo ceased business operations, Lombardo rarely paid Lange within thirty (30) days of the invoice date. In fact, between October 15, 1986 and April 25, 1989 (the date of Lange's last weekly statement), in only one of one hundred twenty-two (122) transactions did Lombardo pay Lange within the thirty (30) day period prescribed by the parties' letter agreement.

During the period of June 2, 1988 to July 2, 1988, Lange supplied sixteen (16) loads of produce, for which $63,925.70 remains unpaid. After July 2, 1988, Lange ceased supplying Lombardo due to Lombardo's nonpayment. At that time Lombardo owed Lange $431,674.21. The parties did not resume sale transactions until October 31, 1988. Shortly after its cessation in service, Lange filed three timely trust notices, covering the sixteen (16) loads, with the United States Department of Agriculture (USDA) on July 15, July 28, and August 4, 1988. Lange also sent a copy of the trust notices to Lombardo by registered mail. Lombardo received the notices on the same date or within one day of the date the notices were received by the USDA. The trust notices set forth the shipment date, invoice number, commodity, contract terms, invoice amount, payment due date, and the amount past due.

II. Sale of the Lombardo Stalls and the Advent of Number 466

After the time that Lange ceased supplying Lombardo with produce, Lange sought ways of alleviating Lombardo's now burgeoning debt, while still allowing Lombardo to continue its produce operations. Thus, on October 28, 1988 Lange purchased from Lombardo's affiliate for $750,000 eleven (11) stalls on Produce Row, from which Lombardo conducted its business. Of the sale proceeds, $150,000 was applied to Lombardo's outstanding balance, $400,000 was disbursed to Uni-Fin, and $200,000 was retained by Lombardo. Lange immediately leased the units back to Lombardo who, with an option to repurchase nine (9) of the stalls, continued with its business operations. Upon the $150,000 payment to Lange, Lombardo maintained an outstanding balance of $127,931.40. In a letter agreement dated October 31, 1988, Lange and Lombardo agreed that beginning November 4, 1988, Lombardo would pay Lange the balance in twenty (20) weekly installments of $6,396.57.

Regarding the value of the stalls, Tom Lange, President of Lange, testified that he had calculated the average price of each of the eleven (11) stalls to be approximately $68,181 (price paid of $750,000 divided by 11 stalls purchased). Uni-Fin, seeking to prove that Lange obtained equity (above the price it paid Lombardo) through the sale, contends that the average value of the stalls was closer to $100,000 per stall. Uni-Fin bases this assertion on a sale six months prior to the Lombardo sale in which Lange purchased two stalls on Produce Row from another party for $100,000 each. Mr. Lange testified, however, that the difficulty in selling eleven stalls at one time necessarily decreased the value of the stalls. While the parties may dispute the exact value of the stalls, this Court finds that Lange acquired substantial equity through its purchase of the Lombardo stalls.

Pursuant to the terms of the Lease and Option Agreement, the "Initial Term" was to be for three (3) years. During this period, Lombardo had the option to repurchase nine of the stalls, provided that its entire outstanding balance of payment with Lange was paid in full at the time of closing. If Lombardo did not choose to exercise its purchase option at the end of three years, it had thirty (30) days thereafter to notify Lange that it wished to renew the lease term for an "Extension Term" of three years. The lease obligated Lombardo to pay an annual base rental of $6,818.18 per unit per year (ten percent of the average value of one stall) in monthly installments of $568.18 on the first of each month. Thus, initially Lombardo was obligated as Lange's tenant for at least three years.

After Lange purchased Lombardo's produce stalls, Lange began to resupply produce to Lombardo under new trading account Number 466, which it created solely for bookkeeping purposes. Number 466 effectively enabled Lange to distinguish and differentiate between the old debt (incurred from deliveries between June 2, 1988 and July 2, 1988) and sums which Lombardo would incur subsequent to the purchase of the stalls on October 28, 1988. Thus, upon the creation of Number 466 on October 31, 1988, all Lombardo bills were charged to that account number and Lombardo incurred no further expenses under Number 143, which was to be paid off in weekly installments.

Lange claims that its thirty (30) day credit terms for Number 466 are stated in a letter from Lange to Lombardo, dated December 21, 1988. The copy of the letter produced by Lange is signed by Gary Lombardo but is undated. A duplicate original of the letter maintained in Lombardo's files is also signed by Gary Lombardo and bears a date of "1/6/89" under Mr. Lombardo's signature. Uni-Fin disputes the sufficiency of the terms agreement because it arose well after the date the produce deliveries commenced (October 31, 1988).

After October 31, 1988, Lange supplied sixty-one (61) loads of produce under Number 466, for which $244,345.05 remains unpaid. Identical to its previous practices regarding Number 143, Lange sent Lombardo weekly statements with respect to the alleged outstanding invoices on Account 466. At the bottom of each of the weekly statements for Number 466 appeared the following legend: "INVOICES 30 DAYS PAST INVOICE DATE ARE OVERDUE". Lange filed with the USDA twelve (12) trust notices covering the sixty-one (61) produce transactions on December 9, 22 and 30, 1988, January 5, 13, 19, and 26, 1989, and February 2, 9, 13, 21, and 27, 1989. Lange also sent Lombardo a copy of the trust notices, which Lombardo received on the same day or one (1) day after the USDA received them. The trust notices contained the same information as was set forth with respect to the notices covering Number 143.

III. The Dishonored Checks

During...