Lombardo Fruit and Produce Co., In re

• Decision Date: 15 December 1993
• Docket Number: No. 93-1683,93-1683
• Citation: 12 F.3d 110
• Parties: In re LOMBARDO FRUIT AND PRODUCE COMPANY, Debtor. GOLDMAN FRUIT AND PRODUCE COMPANY, Plaintiff-Appellees, v. LOMBARDO FRUIT AND PRODUCE COMPANY, doing business as Lombardo's Food Service; Uni-Fin Corporation; David Sosne, Trustee of Bankruptcy for Lombardo Fruit and Produce, Defendants-Appellants.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 110

12 F.3d 110

In re LOMBARDO FRUIT AND PRODUCE COMPANY, Debtor GOLDMAN FRUIT AND PRODUCE COMPANY, Plaintiff-Appellees, v. LOMBARDO FRUIT AND PRODUCE COMPANY, doing business as Lombardo's Food Service; Uni-Fin Corporation David Sosne, Trustee of Bankruptcy for Lombardo Fruit and Produce Defendants-Appellants.

No. 93-1683.

United States Court of Appeals Eighth Circuit.

Submitted Sept. 15, 1993.

Decided Dec. 15, 1993.

Donald Raney, Edwardsville, IL, argued, for defendants-appellants.

Jeffrey Blumenthal, Chicago, IL, argued, for plaintiff-appellee.

Before JOHN R. GIBSON, Circuit Judge, FLOYD R. GIBSON, Senior Circuit Judge, and BEAM, Circuit Judge.

FLOYD R. GIBSON, Senior Circuit Judge.

Goldman Fruit and Produce Company ("Goldman") appeals the district court's ¹ affirmance of the bankruptcy court's ² grant of summary judgment denying Goldman's assertion of trust benefits over the proceeds from the sale of certain agricultural products. We affirm.

I. BACKGROUND

From March 1987 to February 1989, Goldman supplied fresh agricultural produce to Lombardo Fruit and Produce Company ("Lombardo") on a daily basis. When orders were taken, Goldman prepared an invoice that was signed by Lombardo when the produce was received. The invoices, which thereafter were maintained in Goldman's files, did not set forth the terms of payment for the produce. However, Goldman sent Lombardo weekly statements detailing all unpaid invoices. Commencing on September 2, 1988, the invoices bore a legend stating "Notice of Intent to File PACA Trust-Terms net weekly" and that all invoices would "be considered delinquent after 30 days of invoicing." In re Lombardo Fruit & Produce, 106 B.R. 593, 596 (Bankr.E.D.Mo.1989). This legend appeared on all subsequent invoices sent to Lombardo.

The invoices were not timely paid and, as of February 10, 1989, Lombardo owed Goldman over $115,000 for produce. On February 13, Goldman filed notice of its intention to assert trust protection for this sum pursuant to the Perishable Agricultural Commodities Act (PACA), 7 U.S.C. Sec. 499a et seq. (1988). On February 24, Goldman sought trust protection with regard to nine checks Lombardo had tendered after the invoices were due, all of which were returned for insufficient funds. ³

Lombardo filed for bankruptcy, and Goldman instituted an adversary complaint in the bankruptcy court, seeking to preserve and enforce its trust benefits. Uni-Fin, as holder of a first, perfected security interest in Lombardo's accounts receivable, opposed the action. The bankruptcy court granted Uni-Fin's motion for summary judgment, and the district court affirmed this decision. Goldman has appealed.

II. DISCUSSION

PACA was designed to protect small farmers and growers from " 'the sharp practices of financially irresponsible and unscrupulous brokers in perishable commodities.' " Hull Co. v. Hauser's Foods, Inc., 924 F.2d 777, 780 (8th Cir.1991) (quoting Chidsey v. Guerin, 443 F.2d 584, 587 (6th Cir.1971)). In 1984, Congress amended PACA because sellers of fresh produce were unsecured creditors and thus had no protection in light of the produce buyers' practice of granting lending institutions security interests in their accounts receivable. H.R.Rep. No. 543, 98th Cong., 2d Sess. 3 (1983), reprinted in 1984 U.S.Code Cong. & Admin.News 405, 407. Congress declared this practice to be a burden on interstate commerce, 7 U.S.C. Sec. 499e(c)(1) (1988), and decreed that sellers of perishable agricultural commodities were protected by a trust "until full payment of the sums owing in connection with such transactions has been received by such unpaid suppliers [or] sellers...." Id. Sec. 499e(c)(2). The protection extends only to "any receivables or proceeds from the sale of such commodities and food or products," id.; 7 C.F.R. Sec. 46.46(c) (describing trust assets), and proceeds from other sources are not within the trust's rubric. See Six L's Packing Co. v. West Des Moines State Bank, 967 F.2d 256, 258 (8th Cir.1992) (holding that PACA debtor may prove that certain funds are not proceeds from produce sales and hence not part of trust assets).

PACA's trust provision has the precise effect Congress intended; namely, in the event the seller does not receive payment, the seller is elevated to a priority position above that of all the buyer's secured creditors. The trust simply requires the produce buyer to hold the proceeds from its sales of produce and use them to pay suppliers before using those funds to pay its secured creditors. However, the unpaid supplier or seller loses the benefits of the trust protection unless it "has given written notice of intent to preserve the benefits of the trust to the [buyer] and has filed such notice with the Secretary [of Agriculture] within thirty calendar days" of three specified events. 7 U.S.C. Sec. 499e(c)(3). Those events are:

(i) after expiration of the time prescribed by which payment must be made, as set forth in regulations issued by the Secretary, (ii) after expiration of such other time by which payment must be made, as the parties have expressly agreed to in writing before entering into the transaction, or (iii) after the time the supplier, seller, or agent has received notice that the payment instrument promptly presented for payment has been dishonored.

Id. The Secretary's regulations require payment be made within ten days after the produce is accepted, 7 C.F.R. Sec. 46.2(aa)(5), but permit the parties to agree to a longer term provided that term is no longer than thirty days. Id. Sec. 46.46(f)(2).

The bankruptcy court granted Uni-Fin's motion for summary judgment, holding that there was no evidence of a prior written agreement extending the time for payment as required by (ii), that by trying to prove the existence of a valid written agreement Goldman waived any reliance on (i), and that trust protection did not extend to the checks because they were not delivered to Goldman within the time required for payment. Keeping in mind that we review the entry of summary judgment de novo, we examine each of these holdings.

A. The Written Agreement

Goldman argues there was evidence of an agreement sufficient to withstand Uni-Fin's summary judgment motion; this evidence consisted of an undated letter Goldman sent to Lombardo that extended the payment terms to thirty days, the testimony of Goldman's president verifying that the payment terms were thirty days, and the purchase orders that stated payment was due within thirty days. For the agreement to be valid for PACA purposes, it must be "expressly agreed to in writing before entering into" the underlying transaction for produce. 7 U.S.C. Sec. 499e(c)(3)(ii) (emphasis added). There is no evidence that the agreement was reached before any of the individual produce sales. At his deposition, Goldman's president testified that he signed the letter and that it was mailed to Lombardo, but he could not recall when he signed the letter, when the letter was mailed, or when Lombardo's president signed the letter. He further testified that nothing could cause him to recall when these events took place. Though he did testify about the verbal agreements and customs between the parties, this testimony cannot substitute for the writing required by PACA. Finally, the invoices cannot satisfy the statute's requirement of a pre-existing agreement because they were delivered after, not before, the purchase of produce. ⁴ Faced with a record devoid of any evidence tending to prove the existence of a pre-existing written agreement, the...