Liberty Mut. Ins. Co. v. Rotches Pork Packers, Inc.
| Decision Date | 08 July 1992 |
| Docket Number | D,843,Nos. 690,s. 690 |
| Parties | 36 Fed. R. Evid. Serv. 254 LIBERTY MUTUAL INSURANCE COMPANY, as subrogee of Arbogast & Bastian, Inc., Liberty Mutual Insurance Company, Plaintiffs-Appellees-Cross-Appellants, v. ROTCHES PORK PACKERS, INC., Defendant, Bankers Trust Company, Defendant-Appellant-Cross-Appellee. ockets 91-7831, 91-7889. |
| Court | U.S. Court of Appeals — Second Circuit |
Robert Fracasso, New York City (Naomi B. Waltman, Kaye, Scholer, Fierman, Hays & Handler, New York City, of counsel), for defendant-appellant-cross-appellee.
Richard Weinberger, New York City (Harvey L. Woll, Ballon, Stoll & Itzler, New York City, of counsel), for plaintiffs-appellees-cross-appellants.
Before: MINER, ALTIMARI, and MAHONEY, Circuit Judges.
Defendant-appellant-cross-appellee Bankers Trust Company ("Bankers Trust") appeals from a judgment in the amount of $1,363,147.21 entered August 8, 1991 in the United States District Court for the Southern District of New York, Robert P. Patterson, Jr., Judge, to enforce a statutory trust under section 206 of the Packers and Stockyards Act of 1921, as amended (the "Act"), 7 U.S.C. § 196 (1988). 1 Plaintiffs-appellees- cross-appellants Liberty Mutual Insurance Company, as subrogee of Arbogast & Bastian, Inc. ("Arbogast"), and Liberty Mutual Insurance Company (collectively "Liberty Mutual") cross-appeal, seeking an award of attorney fees.
Reversed on the appeal, affirmed on the cross-appeal, and remanded for further proceedings.
Arbogast was a Pennsylvania corporation that purchased and slaughtered livestock and sold livestock, livestock products, meat, and meat products. Liberty Mutual, a Massachusetts corporation engaged in the insurance business, issued a surety bond in the amount of $620,000.00 to Arbogast on May 20, 1983 to guarantee payment to farmers for livestock purchased by Arbogast, pursuant to 7 U.S.C. § 204 (1988) and regulations promulgated thereunder.
Defendant Rotches Pork Packers, Inc. ("Rotches") was a New York corporation engaged in cutting and selling meat food products. Rotches was a customer of Arbogast, purchasing livestock products upon credit or open account pursuant to a security agreement or agreements that provided Arbogast with a security interest in Rotches' accounts receivable and other personal property.
Bankers Trust, a New York bank, entered into accounts financing and security agreements with Rotches on March 25, 1983. These agreements called upon Bankers Trust to extend a line of credit to Rotches in exchange for a security interest in Rotches' accounts receivable and other assets. In view of the conflicting interest provided to Arbogast by the Security Agreement, Arbogast entered into an agreement with Bankers Trust on April 28, 1983 (the "Subordination Agreement") that subordinated Arbogast's security interest in Rotches' accounts receivables and other personal property to the security interest of Bankers Trust therein. Simultaneously, David A. Rotches, the owner of Rotches, provided Arbogast with a personal guarantee of Rotches' indebtedness to Arbogast and a mortgage on his home.
In April 1984, David Rotches, with Arbogast's agreement, began to oversee Arbogast's Allentown, Pennsylvania plant in an effort to increase the daily hog kill volume to plant capacity. In early May 1984, David Rotches closed Rotches and stopped payment on certain checks payable to Arbogast dated April 27, 1984 to May 5, 1984 totaling $818,822.57, alleging a fraudulent course of dealing by Arbogast. On or about May 11, 1984, Arbogast filed for bankruptcy protection in the United States Bankruptcy Court for the Eastern District of Pennsylvania. Subsequently, Arbogast filed an adversary proceeding in the bankruptcy court against Rotches and Bankers Trust to recover funds allegedly owed to Arbogast. This action was dismissed without prejudice by stipulation on March 19, 1985.
In the course of the bankruptcy proceeding, fifty-seven sellers of livestock to Arbogast (the "Sellers") filed claims for nonpayment totaling $1,445,037.68. On September 10, 1984, the bankruptcy court authorized Arbogast to distribute $545,960.00 pro rata to the Sellers out of Arbogast's assets. On April 3, 1985, the bankruptcy court authorized Liberty Mutual to pay the total amount of the surety bond, $620,000.00, to the Sellers pro rata.
In exchange for these payments, at least forty-seven Sellers assigned to Liberty Mutual all their rights and causes of action arising out of transactions with Arbogast, including those arising under the Act. Liberty Mutual also claims that it was subrogated to certain rights of Arbogast and the Sellers as a result of Liberty Mutual's performance of the surety bond.
On May 16, 1988, Liberty Mutual filed a complaint in this action asserting rights derived by assignment and subrogation, as described above. The complaint included one claim against Bankers Trust and one against Rotches calling for each of them to pay to Liberty Mutual funds allegedly held subject to a statutory trust created under § 196(b). Liberty Mutual sought interest, costs, and attorney fees on both claims. Bankers Trust answered with a general denial. Rotches is apparently defunct, and has not appeared or answered.
After discovery, Liberty Mutual and Bankers Trust each moved for summary judgment. Liberty Mutual contended that funds and accounts receivable of Rotches that were in the possession of Bankers Trust constituted assets of (1) a § 196(b) statutory trust of which Arbogast was the trustee, or alternatively of (2) a § 196(b) statutory trust of which Rotches was the trustee and Arbogast a beneficiary, and in either event Liberty Mutual had succeeded to Arbogast's rights. Bankers Trust primarily claimed that: (1) no statutory trust had been proven; (2) any trust of which Arbogast was trustee could not reach the assets of Rotches held by Bankers Trust because of the Subordination Agreement; and (3) the statutory requirements were not satisfied as to any alleged statutory trust of which Rotches was the trustee and Arbogast the beneficiary.
In a revised opinion and order entered February 13, 1991, the district court granted Liberty Mutual's motion for summary judgment in part, and denied Bankers Trust's cross-motion for summary judgment. Liberty Mut. Ins. Co. v. Bankers Trust Co., 758 F.Supp. 890, 891 (S.D.N.Y.1991). The court initially held that orders of the bankruptcy court dated September 10, 1984 and April 3, 1985 (the "Bankruptcy Orders"), and a Decision and Order of the Judicial Officer of the United States Department of Agriculture dated April 13, 1987 (the "Agriculture Order"), established the existence of a statutory trust of which Arbogast was the trustee and the Sellers were the beneficiaries. Id. at 893 & n. 3. The court next addressed the question whether "the assets of [Rotches], now held by Bankers Trust" constituted a part of the corpus of that statutory trust. Id. at 894. After examining that issue, the court concluded "that [Arbogast's] accounts receivable from [Rotches] can be recovered by Liberty Mutual in this action to the extent that Liberty Mutual can establish that they are valid claims of the statutory trust for funds required to make payments under the statutory trust to the Sellers and not claims asserted on behalf of [Arbogast] in a non-trustee capacity." Id. at 895.
The court also ruled that the Subordination Agreement was ineffective as to Arbogast's (and thus Liberty Mutual's) rights under the statutory trust, because "[Arbogast] as trustee did not have power to enter into the [Subordination] Agreement which purported to subordinate trust assets, i.e. [Arbogast's] prior security interest in the assets of [Rotches]." Id. (footnote omitted). Finally, the court determined that no statutory trust could be asserted of which Rotches was the trustee, and Arbogast the beneficiary, because Rotches did not purchase "livestock" from Arbogast within the meaning of § 196(b). Id. at 895-96.
In an opinion and order entered April 1, 1991, the district court affirmed its prior ruling after considering further submissions from the parties. Liberty Mut. Ins. Co. v. Bankers Trust Co., 761 F.Supp. 9, 10-11 (S.D.N.Y.1991). The court also determined that Bankers Trust was liable for prejudgment interest "at the rate of 9% per annum from May 18, 1984, the date on which the [bankruptcy court] temporarily enjoined [Rotches] and Bankers Trust from diverting the proceeds of sales of livestock and [Rotches'] accounts receivable. Id. at 12.
In an opinion and order entered June 25, 1991, the district court denied Liberty Mutual's application for attorney fees, ruling that the Act did not provide for the award of attorney fees except under limited circumstances not presented by this case, Liberty Mut. Ins. Co. v. Bankers Trust Co., 768 F.Supp. 70, 71-72 (S.D.N.Y.1991), and that no other basis existed for an award of attorney fees. Id. at 73-74. Based upon all the foregoing, judgment was entered on August 8, 1991 in favor of Liberty Mutual in the amount of $1,363,147.21 (principal, $827,067.73; interest as of July 30, 1991, $535,939.24; costs, $140.00) against Bankers Trust and Rotches (by default).
This appeal followed. 2
The parties essentially reiterate on appeal the contentions advanced to the district court. 3 We address the claims of Bankers Trust regarding (1) the district court's reliance upon the Bankruptcy Orders and the Agriculture Order in determining the establishment of a statutory trust, and (2) the extent, if any, to which assets of Rotches in the possession of Bankers Trust may be deemed part of the corpus of any statutory trust of which Arbogast is the trustee. Preliminarily, we express our agreement with the district court's rulings as to prejudgment interest and attorney fees, for the reasons stated by the...
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