In re SNA Nut Co., Bankruptcy No. 94 B 5993
| Decision Date | 23 January 1997 |
| Docket Number | Adv. No. 95 A 1295.,Bankruptcy No. 94 B 5993 |
| Citation | 204 BR 537 |
| Court | U.S. Bankruptcy Court — Northern District of Illinois |
| Parties | In re S.N.A. NUT COMPANY, Debtor. S.N.A. NUT COMPANY, Plaintiff, v. TULARE NUT COMPANY, Defendant. |
Catherine Steege, Evanston, IL, for Plaintiff.
Nabil Zumout, for Defendant.
Steven D. Schneiderman, Chicago, IL.
FINDINGS OF FACTS AND CONCLUSIONS OF LAW AND MEMORANDUM OPINION
This case comes before the Court on the Complaint of Debtor, S.N.A. Nut Company ("Debtor") objecting to Tulare Nut Company's ("Tulare") secured creditor status and classification as a Class XIV creditor under Debtor's Fourth Amended Joint Plan of Reorganization dated December 6, 1994 ("Plan"). The issue before the Court is whether Tulare has met its burden of proof that it can trace the walnuts sold to Debtor as nuts that it produced and, therefore, can assert a producer's lien in the nuts. This Court has previously ruled that Tulare has the burden of proof to establish that it can trace the nuts grown by Tulare separately from those processed by Tulare for others. See, S.N.A. Nut Co. v. Tulare Nut Co., 197 B.R. 642 (Bankr.N.D.Ill.1996). After a trial on the merits, the Court finds that Tulare has failed to meet its burden so as to assert a lien in the nuts sold to Debtor. Tulare, therefore, is not entitled to secured creditor status under the Plan.
The facts set forth herein shall stand as this Court's findings of fact.
The Court has jurisdiction to hear this matter under 28 U.S.C. § 1334, and General Rule 2.33(A) of the United States District Court for the Northern District of Illinois. This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (C), (K) & (O).
Debtor is an Illinois corporation, headquartered in Elk Grove Village, Illinois, with its principal place of business in Chicago. Debtor was engaged in the business of buying, shelling, processing and selling pecans and other nut products, such as walnuts, to industrial food producers. Occasionally, when Debtor was in short-supply of processed nuts, it bought "finished product" from other processors to meet specific customers' needs. Finished product consists of the nut meat which has been removed from the shell.
In early 1994, Debtor was in short supply on its inventory of certain types of finished walnut products. In order to cover its customer demand, Debtor advised the Debbie Roy Brokerage Company, Inc. ("D.R. Brokerage"), a broker of finished nut products, that it would be willing to purchase processed and packaged walnuts of a specific grade, size and price, from other processors. D.R. Brokerage solicited bids from various nut processors, including Tulare, to fill Debtor's order.
Tulare owns a walnut processing plant, and is a registered walnut processor in the state of California. Tulare processes nuts purchased from other growers under the Tulare name. Additionally, Tulare processes nuts grown and produced from its own orchards. Tulare operates its own orchards under the name of Hughan Farms. The nuts sold to Debtor were sold under the Tulare name. At no time did Tulare notify either Debtor or its broker that any of the nuts sold to Debtor were "produced" by Hughan or that it claimed a lien.
On or about February 10, 1994, Tulare sold, and delivered to Debtor 44,000 pounds (1,760 25-pound cases) of combination walnut halves and pieces1 for $85,800 ($1.95 per pound) as processed nuts, all of which were processed by Tulare. The parties dispute whether Tulare has demonstrated that those walnuts were grown by Tulare so as to qualify Tulare as a "Producer."
On March 2, 1994, five petitioning creditors filed an involuntary petition in the Western District of Texas, El Paso Division, pursuant to 11 U.S.C. § 303(b), seeking an Order for Relief against Debtor under Chapter 11 of the Bankruptcy Code ("Code"). On March 24, 1994, Debtor consented to the entry of an Order for Relief and the Court transferred venue to the Northern District of Illinois, Eastern Division.
On the petition date, the total amount of processed walnuts in Debtor's possession exceeded 484,000 pounds.
On January 19, 1995, the Court entered an order confirming the Plan. The Plan defines "California Statutory Lien Creditors" as California growers asserting liens under the California Food & Agricultural Code §§ 55631-55635. Pursuant to § 1.15 of the Plan, Class XIV consists of all claims of the California Statutory Lien Creditors. Pursuant to Article III of the Plan, Class XIV is an "unimpaired" class under § 1124 of the Code. Section 3.5 of the Plan provides, "within 60 days after the confirmation date, each creditor who contends that it is entitled to full payment of its allowable claim by reason of statutory liens arising under California law, must file with the bankruptcy court and the Debtor a document setting forth the basis for such contention and attaching all documentary support . . . All objections filed to Class XIV claims must be filed within 120 days after the Confirmation Date."
On January 30, 1995, Tulare filed a proof of claim asserting a secured claim. On March 21, 1995, Tulare amended its proof of claim to assert its legal identity as "Tulare Nut" and its status as a Class XIV claimant.
On May 19, 1995, Debtor filed an omnibus Objection to California Grower Claims. On October 31, 1995, Debtor filed an Adversary Complaint objecting to Tulare's secured creditor status and classification as a Class XIV creditor under the Plan. Count I of the Complaint is an action to avoid Tulare's producer's lien under § 545(2) of the Code, on the grounds that the lien was not perfected and enforceable against a hypothetical bonafide purchaser of walnuts at the time of the commencement of the case. Count II of the Complaint is an objection to Tulare's claim on the grounds that, (1) Tulare is not a producer of farm products entitled to assert a lien under the California statute; (2) Tulare must trace its alleged lien, which is not enforceable against other inventory of the Debtor; (3) Tulare is estopped from asserting its lien; (5) Tulare's claim is disallowable under § 502(d) of the Code since it is subject to avoidance under § 545(2).
Tulare filed a Motion for Summary Judgment, or in the alternative, for Partial Summary Judgment, on both counts of the Complaint, and Debtor filed a Cross-Motion for Summary Judgment.
In a Memorandum Opinion dated June 24, 1996, this Court granted Tulare's Motion for Summary Judgment as to Count I and denied Tulare's Motion with respect to Count II of the Complaint. The Court denied Debtor's Cross-Motion for Summary Judgment as to both Count I and Count II of the Complaint. S.N.A v. Tulare, supra.
The issue presented is whether Tulare has a valid producer's lien against walnuts sold to Debtor. The burden of proof lies with the party asserting the producer's lien. Tulare must, therefore, establish (1) that it is a producer of walnuts, and, (2) that the walnuts which it grew were not commingled by Tulare with the nuts of others, or that (3) it can trace those nuts to the nuts delivered to Debtor. For the reasons set forth below, this Court finds that Tulare has failed to meet its burden of proof and, therefore, cannot assert a producer's lien over walnuts sold to Debtor. Tulare is, therefore, not entitled to secured creditor status under the Plan.
If a creditor files a claim, a rebuttable presumption arises that the claim is valid. Fed.R.Bankr.P. 3001(f). Claim objectors carry the initial burden to produce some evidence to overcome this rebuttable presumption. In re Stoecker, 143 B.R. 879, 883 (N.D.Ill.1992). However, the ultimate burden of persuasion always lies on the claimant to prove its entitlement to the claim. In re Octagon Roofing, 156 B.R. 214, 218 (Bankr. N.D.Ill.1993).
Tulare filed a claim against Debtor, asserting a producer's lien against the walnuts it sold to Debtor under § 55631 of the California Producer's Lien Statute ("Lien Statute") which states in pertinent part:
Every producer of any farm product that sells any product which is grown by him to any processor under contract, express or implied, in addition to all other rights and remedies which are provided for by law, has a lien upon such product and upon all processed or manufactured forms of such farm product for his labor, care, and expense in growing and harvesting such product. The lien shall be to the extent of the agreed price, if any, for such product so sold. Cal.Food & Agric.Code § 55631.
Under California law, the Lien Statute provisions are to be construed liberally to promote the Food and Agricultural Code's purposes, which are "promoting and protecting the agricultural industry" and "protecting the public health, safety and welfare." In re Loretto Winery, Ltd., 898 F.2d 715 (9th Cir.1990), citing, Cal.Food & Agric.Code § 3 (West 1986). The legislative intent behind the Lien Statute was to assure that producers will be fully compensated for their farm products. See, McKee v. Bell-Carter Olive Co., 186 Cal.App.3d 1230, 1237, 231 Cal.Rptr. 304, 308 (1986).
In order to be entitled to a lien under the Lien Statute, Tulare must have sold walnuts "grown by him" to Debtor. This Court has previously ruled that a producer does not automatically forfeit its lien by engaging in the activity of processing nuts, so long as those operations are separate and distinct. However, this Court will consider whether Tulare should be estopped from asserting a producer's lien because Tulare did not disclose to Debtor that is a producer of walnuts entitled to protection under the Lien Statute.
Estoppel is an equitable doctrine within the court's discretion and is intended to prevent a party from taking advantage of its own wrong by asserting its strict legal rights. Tackleson v. Abbott-Northwestern Hospital, 415...
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