Liberty Mut. Ins. Co. v. Bankers Trust Co.

• Decision Date: 12 February 1991
• Docket Number: No. 88 Civ. 3421 (RPP).,88 Civ. 3421 (RPP).
• Citation: 758 F. Supp. 890
• Parties: LIBERTY MUTUAL INSURANCE COMPANY, as subrogee of Arbogast & Bastian, Inc. and Liberty Mutual Insurance Company, Plaintiff, v. BANKERS TRUST COMPANY and Rotches Pork Packers, Inc., Defendants.
• Court: U.S. District Court — Southern District of New York

758 F. Supp. 890

LIBERTY MUTUAL INSURANCE COMPANY, as subrogee of Arbogast & Bastian, Inc. and Liberty Mutual Insurance Company, Plaintiff, v. BANKERS TRUST COMPANY and Rotches Pork Packers, Inc., Defendants.

No. 88 Civ. 3421 (RPP).

United States District Court, S.D. New York.

February 12, 1991.

Ballon Stoll & Itzler, New York City by Richard Weinberger, for plaintiff.

Kaye, Scholer, Fierman, Hays & Handler, New York City by Harvey Strickon, for defendant Bankers Trust Co.

REVISED OPINION AND ORDER

ROBERT P. PATTERSON, Jr., District Judge.

Plaintiff Liberty Mutual Insurance Company ("Liberty Mutual") moves for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure and seek damages of $1,445,037.68, plus interest, costs, and attorneys' fees. Defendant Bankers Trust Company ("Bankers Trust") cross moves for summary judgment, pursuant to Fed.R.Civ.P. 56. For the reasons set forth below, plaintiff's motion is granted in part and defendant's cross-motion is denied.

BACKGROUND

Arbogast & Bastian ("A & B"), now defunct, was a Pennsylvania corporation engaged in the business of purchasing and slaughtering livestock and reselling livestock, meat, meat products and livestock products. Liberty Mutual is a Massachusetts corporation engaged in the insurance business, which on May 20, 1983 issued a surety bond to A & B in the amount of $620,000.00, to ensure payment to farmers for livestock purchased by A & B, pursuant to 7 U.S.C. § 204 and regulations promulgated thereunder. Defendant Rotches Pork Packers, Inc. ("Rotches, Inc."), now defunct, was a New York corporation engaged in the business of cutting and selling meat food products, including dressed hogs, and was a customer of A & B. Defendant Bankers Trust Company ("Bankers Trust") is a national bank with its principal place of business in New York which, on March 25, 1983, entered into an Accounts Financing Agreement to extend a line of credit to Rotches, Inc., together with a security agreement pursuant to which Rotches, Inc. pledged its accounts receivable and certain other property, and for which the requisite U.C.C. filings were made. (Defendant's Exhibit B).

Prior to entering into the financing and security agreements, Rotches, Inc. purchased meat food products from A & B on credit. In March, 1982 it gave A & B a security interest in Rotches, Inc.'s accounts receivable and other personal property. Soon after Bankers Trust entered the line of credit agreement with Rotches, Inc. in the amount of $1 million on March 25, 1983, A & B entered into an agreement with Bankers Trust dated April 28, 1983 ("the Inter-Creditor Agreement") by which A & B subordinated any claims to assets, including accounts receivable, of Rotches, Inc. in favor of Bankers Trust. As consideration, David A. Rotches, the owner of Rotches, Inc., gave A & B a personal guarantee including a mortgage on his home. Bankers Trust's line of credit enabled Rotches, Inc. to pay accounts payable to A & B and purchase meat food products in greater quantities from A & B. By May of 1984, the Bankers Trust line of credit to Rotches, Inc. had been increased to $2-3 million, which Rotches, Inc. had drawn upon in the amount of $1,835,000, which amount was an outstanding loan as of May 10, 1984.

In April, 1984, David Rotches, with A & B's agreement, undertook oversight of A & B's plant in Allentown, Pa., in an effort to raise the daily hog kill to plant capacity. In early May, 1984, David Rotches closed Rotches, Inc., after claiming to have discovered a course of fraudulent dealing by A & B, and stopped payment on twenty checks of Rotches, Inc. issued to A & B, totalling $818,822.57 and bearing dates ranging from April 27, 1984 to May 5, 1984. On or about May 11, 1984, A & B filed a voluntary bankruptcy petition for reorganization, under Chapter 11 of the Bankruptcy Act, in the United States Bankruptcy Court for the Eastern District of Pennsylvania ("the Bankruptcy Court"). On May 18, 1984, an adversary proceeding was filed on behalf of A & B in the Bankruptcy Court to recover funds from Rotches, Inc. and Bankers Trust. (The proceeding was dismissed without prejudice by stipulation on March 19, 1985). As a result of A & B's bankruptcy, fifty-seven sellers of livestock ("Sellers") who had not received full payment from A & B filed claims totalling $1,445,037.68 for non-payment of livestock deliveries. In September, 1984, the Bankruptcy Court authorized A & B to distribute pro rata to the Sellers a total of $545,960.00. On April 3, 1985, the Bankruptcy Court authorized Liberty Mutual to distribute the total proceeds of the surety bond, $620,000.00, to the Sellers pro rata.

In return for the $620,000.00 distribution, Liberty Mutual received from at least forty seven Sellers a "Release and Assignment," each of which released Liberty Mutual from all further liability under the bond and assigned to Liberty Mutual all rights and causes of action of the Sellers, including those arising under the Packers and Stockyards Act.¹ The total dollar amount of these assignments is unclear but is something less than if fifty seven assignments had been received by Liberty Mutual.² Liberty Mutual brings this action based on its rights as assignee of the Sellers' claims under the Packers and Stockyards Act and also based on its right as a subrogee of A & B, now defunct, due to Liberty Mutual's payment of the surety bond.

DISCUSSION

To grant a motion for summary judgment a court must find that there is no genuine issue as to any material fact, and that the moving party is entitled to judgment as a matter of law because, after sufficient time for discovery, the non-moving party has failed to make a sufficient showing of an essential element of its case as to which it has the burden of proof. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). See also Anderson v. Liberty Lobby, 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The burden rests on the moving party to demonstrate the absence of a genuine issue of material fact, Adickes v. S.H. Kress & Co., 398 U.S. 144, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970), and the Court must view the facts in the light most favorable to the non-moving party. Meiri v. Dacon, 759 F.2d 989, 997 (2d. Cir.1985), cert. denied, 474 U.S. 829, 106 S.Ct. 91, 88 L.Ed.2d 74 (1985).

Plaintiff's motion for summary judgment relies on two theories:

First, that the assets (funds and accounts receivable) of Rotches, Inc., owed to A & B and possessed by Bankers Trust, constitute assets of a statutory trust created by Section 206(b) of the Packers and Stockyards Act, codified at 7 U.S.C. § 196(b), to which Liberty Mutual, as assignee of the Sellers, is entitled and to which A & B as trustee of the statutory trust had claims (which Liberty Mutual now asserts as A & B's subrogee). Second, that the assets (funds and accounts receivable) of Rotches, Inc. constitute assets of a Section 196(b) statutory trust of which Rotches, Inc. is trustee and A & B is the beneficiary.

Defendant responds that there is not proof that a statutory trust had been imposed upon A & B by the Sellers; that even if there were a valid statutory trust on behalf of the Sellers, it would not extend (due to the Inter-Creditor Agreement and Rotches, Inc.'s offsetting claims) to assets held by Rotches, Inc. and Bankers Trust; that plaintiff may not amend its complaint to allege that a trust arose between A & B and Rotches, Inc.; that as a matter of law, no such trust could have arisen between A & B and Rotches, Inc. because many transactions between them did not meet the requirements of the statute; and that any claims of A & B are completely subordinated to Bankers Trust's interest by the Inter-Creditor Agreement.

The Packers and Stockyards Act provides in part:

(a) It is hereby found that a burden on and obstruction to commerce in livestock is caused by financing arrangements under which packers encumber, give lenders security interest in, or place liens on, livestock purchased by packers in cash sales, or on inventories of or receivables or proceeds from meat, meat food products, or livestock products therefrom, when payment is not made for the livestock and that such arrangements are contrary to the public interest. This section is intended to remedy such burden on and obstruction to commerce in livestock and protect the public interest.

(b) All livestock purchased by a packer in cash sales, and all inventories of, or receivables or proceeds from meat, meat food products, or livestock products derived therefrom, shall be held by such packer in trust for the benefit of all unpaid cash sellers of such livestock until full payment has been received by such unpaid sellers: * * * Provided, That the unpaid seller shall lose the benefit of such trust if, in the event that a payment instrument has not been received, within thirty days of the final date for making a payment under section 228b of this title, or within fifteen business days after the seller has received notice that the payment instrument promptly presented for payment has been dishonored, the seller has not preserved his trust under this subsection. The trust shall be preserved by giving written notice to the packer and by filing such notice with the Secretary.

(c) For purposes of this section, a cash sale means a sale in which the seller does not expressly extend credit to the buyer. 7 U.S.C. § 196.

Defendant's contention that no statutory trust was created for the Sellers is ill-founded. Plaintiff submitted as evidence the Decision and Order of the Judicial Officer of the United States Department of Agriculture, dated April 13, 1987 (Plaintiff's Exhibit 15) and the orders of the Bankruptcy Court of the Eastern District of Pennsylvania, dated respectively September 10, 1984 and April 3, 1985 (Plaintiff's Exhibits 10 and 11), both of which find that a trust was created on behalf of the Sellers as to A & B's assets. Although...