In re Richmond Produce Co., Inc.

• Citation: 112 BR 364
• Decision Date: 16 March 1990
• Docket Number: Bankruptcy No. 4-89-00513 N3,4-89-0078 and 4-89-0079 AJ.
• Court: United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Northern District of California
• Parties: In re RICHMOND PRODUCE CO., INC., a California corporation, DEBRUYN PRODUCE COMPANY, a Michigan corporation and Colvin Distributing Co., a California corporation, Plaintiff, v. RICHMOND PRODUCE CO., INC., and the Mechanics Bank, Defendants.

112 B.R. 364 (1990)

In re RICHMOND PRODUCE CO., INC., a California corporation,

DEBRUYN PRODUCE COMPANY, a Michigan corporation and Colvin Distributing Co., a California corporation, Plaintiff, v. RICHMOND PRODUCE CO., INC., and the Mechanics Bank, Defendants.

Bankruptcy Nos. 4-89-00513 N3, 4-89-0078 and 4-89-0079 AJ.

United States Bankruptcy Court, N.D. California.

March 16, 1990.

COPYRIGHT MATERIAL OMITTED

David J. Arata, San Jose, Cal.

Frederick W. Daily, San Francisco, Cal.

Robert T. Dollinger, Ogden, Murphy & Wallace, Wenatchee, Wash.

David M. Dooley, Dooley, Anderson, Johnson & Pardini, San Francisco, Cal., for Colvin Distributing.

Mark Gorton, McDonough, Holland & Allen, Sacramento, Cal.

Kevin E. Irwin, Keating, Muething & Klekamp, Cincinnati, Ohio.

Lynn A. Koller, Koller & MacConaghy, Emeryville, Cal., for debtors.

Anne M. Frasetto, Abramson, Church & Stave, Salinas, Cal.

Janet LaBonte, Rose Valley Group Inc., Woodland, Cal Ralph W. Pederson, Manager, Credit & Collections, Sunkist Growers, Inc., Sherman, Cal.

Michael St. Peter, Kaplan, Russin, Vecchi & Eytan, San Francisco, Cal.

Marion I. Quesenbery, Dressler & Quesenbery, Newport Beach, Cal.

Sandra Quigley, Bronson, Bronson & McKinnon, San Francisco, Cal.

Bruce A. Richardson, Wykoff, Richardson, Sanson, Allen & Locks-Paddon, Watsonville, Cal.

Carol C. Shandler, Encino, Cal.

Darya S. Druch, Stokes, Welch, Stromscheim & Olrich, San Francisco, Cal.

John T. Hansen, Richard A. Lapping, Thelen, Marrin, Johnson & Bridges, San Francisco, Cal., for the Mechanics Bank.

Daniel A. McDaniel, David L. Grilli, Nomellini & Grilli, Stockton, Cal.

Peter S. Munoz, Lynn M. McLean, Jackson, Tufts, Cole & Black, San Francisco, Cal.

Jeffrey M. Chebot, Owens, Whiteman and Bankes, Philadelphia, Pa.

Duane M. Geck, Severson & Werson, San Francisco, Cal., Stephen P. McCarron, Steven H. Kerbel, Sures, Dondero and McCarron, Silver Spring, Md., for Debruyn Produce and Colvin Distributing Co.

DECISION

EDWARD D. JELLEN, Bankruptcy Judge.

I. INTRODUCTION

Numerous motions and cross-motions for summary judgment pursuant to Bankruptcy Rule 7056 have been filed in these consolidated adversary proceedings, by which many unpaid sellers and suppliers of perishable agricultural commodities ("claimants") to Richmond Produce Company, Inc., the above-debtor ("debtor"), seek to establish that accounts receivable proceeds of the debtor in the approximate sum of $700,000 (which are impounded pursuant to order of this court) are trust funds under the trust provisions of the Perishable Agricultural Commodities Act ("PACA"), 7 U.S.C. Section 499e(c). Claimants' trust fund claims are disputed by The Mechanics' Bank of Richmond ("Bank"), which has a perfected security interest in all the debtor's accounts receivable and the proceeds thereof to secure an obligation in the sum of $1,460,681.

The debtor takes no position concerning the present motions. Consequently, the court is faced with a series of related disputes between the Bank, on the one hand, and a PACA claimant, on the other, as to whether the claimant's trust fund claim has been preserved in accordance with the requirements of PACA and regulations thereunder, 7 CFR Section 46.1 et. seq. The parties are in agreement that any monies found to be trust funds pursuant to PACA are not property of the estate under Bankruptcy Code Section 541(a). See, e.g. In re Milton Poulos, Inc., 107 B.R. 715, 718 (9th Cir. BAP 1989); In re Fresh Approach, Inc., 51 B.R. 412, 419 (Bky. N.D.Tex. 1985).

As a related matter, several PACA claimants contend that the Bank received trust funds from the debtor which it must disgorge, and have moved for summary judgment against the Bank. The Bank, in turn, contends that it may retain these funds and that it is entitled to summary judgment on this issue.

Twenty-six PACA claimants are before the court. Four claimants, Arata Ranches, New West, Rose Valley and Salinas Lettuce Farmers Coop concede that they do not have a valid PACA claim. A fifth claimant, Sierra Packing, admits that its PACA claim has been paid, but answered the complaint to preserve its rights in the event that the payment it received is avoided. The Bank concedes the validity of the PACA claim in the sum of $44,863.60 asserted by a sixth claimant, Chiquita Brands, and three claimants, Country Produce, Inc., Greenleaf Produce Co. and Watsonville Exchange, failed to respond to the Bank's motion. The following is a list of the seventeen remaining claimants and the amount of each claimant's disputed PACA claim:

                 1. Bud of California, Inc
                     ("Bud")                            $ 67,518.85
                 2. Buak Fruit Co. ("Buak")                1,200.00*
                 3. Colvin Distributing Co
                     ("Colvin")                           85,874.10
                 4. Custom Fruit Sales, Inc
                     ("Custom")                          148,797.20
                 5. Blue Goose Growers ("Dole
                     Citrus") dba Dole Citrus              3,258.00
                 6. Dole Fresh Fruit Co. ("Dole
                     Fresh")                              69,232.18
                 7. Debruyn Produce Co. ("Debruyn")       27,097.75
                 8. Elwin R. Mann, Inc. ("Elwin
                     Mann")                                3,024.00
                 9. Freshco, Inc. ("Freshco")              3,249.40*
                10. Mann Packing Co., Inc
                     ("Mann Packing")                     59,015.10
                11. Merrill Farms ("Merrill")              2,923.20*
                12. Monterey Mushrooms, Inc.
                     ("Monterey")                         27,702.75
                13. Oshita Marketing, Inc.
                     ("Oshita")                           18,749.95
                14. Produce Exchange, Inc.
                     ("TPE")                             423,569.47
                15. Sam Wong & Son, Inc.
                     ("Sam Wong")                        146,312.48*
                16. Sunkist Growers, Inc.
                     ("Sunkist")                          24,227.00*
                17. Tavilla Sales Co. ("Tavilla")         25,071.67
                

II. OVERVIEW OF PACA

PACA was enacted by Congress in 1930 to regulate the interstate and foreign shipment and handling of perishable agricultural commodities. In 1984, Congress amended PACA by adding 7 U.S.C. Section 499e(c), under which a buyer of perishable agricultural commodities holds the produce and any related inventory and accounts receivable in trust for the benefit of all of the buyer's unpaid sellers. The unpaid sellers are not required to trace, and the trust arises immediately upon delivery. In re W.L. Bradley Co., Inc., 75 B.R. 505, 509 (Bky. E.D.Pa. 1987); In re Fresh Approach, Inc., 51 B.R. 412, 422-423 (Bky. N.D.Tex. 1985).

The purpose of this legislation is set forth in 7 U.S.C. Section 499e(c)(1), which provides as follows:

"(1) It is hereby found that a burden on commerce in perishable agricultural commodities is caused by financing arrangements under which commission merchants, dealers, or brokers, who have not made payment for perishable agricultural commodities purchased, contracted to be purchased, or otherwise handled by them on behalf of another person, encumber or give lenders a security interest in, such commodities, or on inventories of food or other products derived from such commodities, and any receivables or proceeds from the sale of such commodities or products, and that such arrangements are contrary to the public interest. This subsection is intended to remedy such burden on commerce in perishable agricultural commodities and to protect the public interest."

PACA and the regulations thereunder, 7 CFR Section 46.1 et. seq., set forth the procedural steps with which a PACA claimant must comply in order to preserve the claimant's trust benefits. Essentially, the claimant must give the buyer written notice of the claimant's intent to preserve the benefits of the trust, and file a copy of that notice with the United States Department of Agriculture ("USDA").

The statute sets forth three alternatives as to the timing of the notice. 7 U.S.C. Section 499e(c)(3). The first alternative permits the filing of the notice within thirty days after expiration of the time by which payment must be made as set forth in the regulations issued by the Secretary of Agriculture. 7 U.S.C. Section 499e(c)(3)(i). The regulations, in turn, set forth, detailed provisions as to when a buyer must make payment. 7 CFR Section 46.2(aa). For present purposes, the provision of primary relevance is that which requires the buyer to make payment within ten days following the buyer's acceptance of delivered produce. 7 CFR Section 46.2(aa)(5).

The second alternative permits the filing of a notice within thirty days after passage of the time period agreed upon between the seller and buyer in a written contract entered into prior to the transaction, 7 U.S.C. Section 499e(c)(3)(ii), so long as such payment period is not in excess of thirty days after the buyer's acceptance of the produce. 7 CFR Section 46.46(f)(2). Under the third alternative, if a payment by check is tendered and the check fails to clear, the notice may be filed within thirty days following the seller's receipt of notice that the check failed to clear. 7 U.S.C. Section 499e(c)(3)(iii).

III. FILINGS ALLEGED TO BE PREMATURE

It is not disputed that four claimants filed notices with the USDA before the due date of some of the invoices covered by the notices. Specifically, Sam Wong's filing of February 3, 1989 included six invoices for which payment was due on various dates from February 5 to February 11, 1989. Dole Fresh's filing of February 6, 1989 included an invoice payable on February 8, 1989. Colvin's filing of February 7, 1989 included eight invoices for which payment was due on various dates from February 8 to February 12, 1989. Bud's filing of February 16, 1989 included invoices for which payment was due on various dates from February 17 to February 24, 1989.

7 U.S.C. Section 499e(c)(3) provides in relevant part, as follows:

"(3) The unpaid supplier, seller, or agent shall lose the benefits of such trust unless such person has given written notice of intent to preserve the benefits of the trust to the commission merchant, dealer, or broker and

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