In re The Julien Co., Bankruptcy No. 90-20283-B (mjn)

• Decision Date: 23 March 1992
• Docket Number: Bankruptcy No. 90-20283-B (mjn),Adv. No. 90-0137.
• Parties: In re The JULIEN COMPANY, Debtor. PLAINS COTTON COOPERATIVE ASSOCIATION OF LUBBOCK, TEXAS, d/b/a Rolling Plains Cooperative Compress of Sweetwater, Texas, Oklahoma Cotton Cooperative Association of Altus, Oklahoma and Telmark, Inc., Plaintiffs, v. The JULIEN COMPANY, Debtor, Jack F. Marlow, Trustee, Bankers Trust Company, Bank One Texas, N.A., Amsterdam-Rotterdam N.V., Bank Mees & Hope N.V., Federal Asset Management Company, French American Banking Corporation and Bayerische Vereinsbank AG, Defendants.
• Court: United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Western District of Tennessee

141 B.R. 359 (1992)

In re The JULIEN COMPANY, Debtor.

PLAINS COTTON COOPERATIVE ASSOCIATION OF LUBBOCK, TEXAS, d/b/a Rolling Plains Cooperative Compress of Sweetwater, Texas, Oklahoma Cotton Cooperative Association of Altus, Oklahoma and Telmark, Inc., Plaintiffs, v. The JULIEN COMPANY, Debtor, Jack F. Marlow, Trustee, Bankers Trust Company, Bank One Texas, N.A., Amsterdam-Rotterdam N.V., Bank Mees & Hope N.V., Federal Asset Management Company, French American Banking Corporation and Bayerische Vereinsbank AG, Defendants.

Bankruptcy No. 90-20283-B (mjn), Adv. No. 90-0137.

United States Bankruptcy Court, W.D. Tennessee, W.D.

March 23, 1992.

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William J. Landers, Memphis, Tenn., for Bankers Trust Co.

John L. Ryder, Apperson, Crump, Duzane & Maxwell, Memphis, Tenn., for Amsterdam-Rotterdam Bank, N.V.

Jack F. Marlow, Memphis, Tenn., Chapter 11 Trustee.

J. David Blaylock, Memphis, Tenn., for trustee.

Julie C. Chinn, Memphis, Tenn., Asst. U.S. Trustee.

James F. Gleason, Jr., Hertzog, Calamari & Gleason, New York City, for Bayerische Vereinsbank A.G.

Barry Radick, Risa M. Rosenberg, Milbank, Tweed, Eadley & McCloy, New York City, for Bank Mees & Hope, N.V.

William J. Lowy, Mudge, Rose, Guthrie, Alexander & Ferdon, New York City, for French American Banking Corp.

C. Wade Cooper, Jackson & Walker, Dallas, Tex., for Bank One Tex., N.A.

Jack P. Driskill, McWhorter, Cobb & Johnson, Lubbock, Tex., for Plains Cotton Co-op. Ass'n.

MEMORANDUM OPINION AND ORDER ON CROSS MOTIONS FOR PARTIAL SUMMARY JUDGMENT

WILLIAM H. BROWN, Bankruptcy Judge.

This core proceeding¹ is before the Court on cross motions for summary judgment filed by the above named parties to these adversary proceedings. Essentially at issue is whether the plaintiff, Plains Cotton Cooperative Association ("PCCA"), holds a general lien on the proceeds of cotton that was in its possession at the time The Julien Company's ("debtor") bankruptcy petition was filed and whether PCCA additionally holds liens on deferred sales options ("DSO") and warehouse receipts also in its possession on the petition date. The following constitutes findings of fact and conclusions of law pursuant to F.R.B.P. 7052 and 7056.

SUMMARY OF FACTS

The record reflects that the debtor's bankruptcy case was commenced with the filing of an involuntary Chapter 7 petition on January 10, 1990. The case was converted to one under Chapter 11 on January 11, 1990, and Jack F. Marlow was subsequently named trustee of the Chapter 11 estate.

Prior to commencement of the bankruptcy case, the debtor was in the business of buying and selling cotton. According to PCCA, it is primarily a cotton merchandising company organized to sell cotton for its member producers. It also stores its members' cotton until such time as the cotton is sold and shipped to the ultimate purchaser. In this capacity it sold cotton to the prepetition debtor. It subsequently stored the cotton and retained the warehouse receipts until it received shipping orders from the debtor. Further, according to PCCA, in March of 1989, PCCA and the debtor entered into an oral Cotton Merchandising Agreement ("service contract"). Pursuant to this service contract, PCCA provided the debtor with a computerized inventory management system and shipment preparation services for which it charged the debtor $.50 per bale. In addition to bales of cotton covered by warehouse receipts, options to redeem bales of cotton subject to government loans (DSO's) owned by the debtor were included in the inventory management system. The debtor was charged $.50 per bale for services related to this cotton as well. PCCA retained both the warehouse receipts and the DSO cards ("cotton documents"). (Affidavit of David Stanford, Ex. D).

Pursuant to the alleged service contract, PCCA also leased computer printers to the debtor from which the debtor could obtain inventory reports. These printers were maintained at the debtor's offices. (Id.) Based upon the above described arrangement with the debtor, PCCA asserts the following claims:

(1) $86,076.48 in storage charges for cotton shipped from PCCA\'s warehouses prior to the bankruptcy;

(2) $63,294.50 in service charges for cotton subject to warehouse receipts and DSO\'s which was included in the Cotton Merchandising Agreement;

(3) $233.00 in interest on the unpaid service charges;

(4) $3,547.50 in lease payments for 3 computer terminals leased to the debtor.

At commencement of the debtor's bankruptcy case, PCCA was in possession of 55,527 bales of cotton, as well as 12,945 negotiable warehouse receipts and 113,334 DSO's subject to the service contract. The debtor's business was largely financed by the institutional lenders named as defendants in these adversary proceedings. These lenders assert security interests in virtually all the debtor's assets existing at the case's inception, including the assets possessed by PCCA. PCCA asserts a lien on this same cotton, or its proceeds, for charges arising out of the storage and handling of all of the debtor's cotton. In addition, PCCA asserts a lien on the cotton documents for unpaid service contract charges.

Following his appointment as trustee, Mr. Marlow ("Trustee") was authorized to liquidate the debtor's inventory pursuant to the Court's "Order Authorizing The Trustee To Sell Property Of The Estate Free And Clear Of Liens" entered on February 15, 1990. After liquidation of the inventory, PCCA was paid its "bale specific" charges, which are charges for services performed with regard to the specific cotton in storage at the time the bankruptcy case was commenced. PCCA was additionally paid $28,771.00 pursuant to a subsequent agreed order whereby the Trustee rejected the alleged cotton merchandising agreement and turned the leased computers over to PCCA and PCCA surrendered the cotton documents to the Trustee. The balance of the proceeds has been paid provisionally to the institutional lenders.²

In addition to authorizing liquidation of the debtor's cotton and rejection of the alleged service contract, the February 15, 1990, and May 1, 1990, orders reserved all rights of the parties and provided for the filing of complaints to enforce such rights. Thus, PCCA initiated the instant adversary proceeding to enforce its asserted "general liens" or liens asserted upon the cotton in storage at commencement of the case for charges for services related to cotton shipped prior to commencement of the case and to assert possessory liens and purchase money security interests in the cotton documents for service contract charges.

In response to PCCA's complaint, the institutional lenders filed a "Joint Motion for Partial Summary Judgment." According to the institutional lenders, PCCA, as a matter of law, has not properly reserved a general lien on the cotton in accordance with applicable law. PCCA responded to this motion with cross motions for partial summary judgment, asserting that it had in fact properly reserved a general lien as evidenced by the language of the warehouse receipts representing the cotton at issue. PCCA further asserts that it holds enforceable possessory liens and/or purchase money security interests in the cotton and cotton documents. In the alternative, PCCA contends that it is entitled to legal or equitable setoff of the amounts due, is entitled to a general lien under an equitable "color of lien" theory, or is entitled to recoupment as a matter of law. The defendant, Bankers Trust Company ("BTCo") responded to PCCA's asserted purchase money and possessory liens on the cotton and cotton documents with a cross motion for summary judgment, contending that PCCA does not hold such liens but that if the Court finds otherwise, BTCo holds superior liens. BTCo and the remaining institutional lenders dispute the alternative grounds for relief asserted by PCCA, contending each is meritless.

Therefore, with respect to the cotton, the Court is asked to determine whether the following issue may be resolved as a matter of law:

(1) Whether PCCA\'s warehouse receipts reflect properly reserved general liens in accordance with applicable law.

With respect to the cotton and the cotton documents, the Court is asked to determine whether the following issues may be resolved as a matter of law:

(1) Whether PCCA holds a purchase money security interest ("PMSI") in the cotton and cotton documents and, if so, whether it has priority over BTCo\'s claim;

(2) Whether PCCA holds a seller\'s security interest in the cotton and cotton documents and, if so, whether it has priority over BTCo\'s claim;

(3) Whether PCCA holds a possessory lien on the cotton and cotton documents for unpaid service charges and, if so, whether it has priority over BTCo\'s claim;

(4) Whether PCCA is entitled to legal or equitable setoff of the amounts due for unpaid storage and service charges;

(5) Whether PCCA is entitled to recoupment of the amounts due; and

(6) Whether PCCA is entitled to recover under a "color of lien" theory.³

The parties have filed affidavits, exhibits, and extensive memoranda in support of their respective positions. Except for the existence of the cotton merchandising agreement and the amount of PCCA's claim, which are vehemently disputed by BTCo, the institutional lenders assume the facts alleged by PCCA to be true only for purposes of resolution of the issues raised by these motions and cross motions. Based on the fact that only the issues enumerated above are to be resolved with this memorandum, the Trustee adopts the positions and reasoning therefore asserted by the institutional lenders.

Examination of the pleadings, memoranda, affidavits and exhibits submitted in this proceeding has led the Court to conclude that the issues of whether the warehouse receipts' language properly reserves a general lien, whether PCCA holds possessory or purchase money security interests, and whether PCCA is...