Marvin Properties, Inc., In re

• Citation: 854 F.2d 1183
• Decision Date: 19 August 1988
• Docket Number: No. 87-2488,87-2488
• Parties: In re MARVIN PROPERTIES, INC., dba Cut & Ready Foods, Debtor. CONSOLIDATED MARKETING, INC., Appellant, v. MARVIN PROPERTIES, INC., dba Cut & Ready Foods; Bank of California, Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)

Page 1183

854 F.2d 1183

In re MARVIN PROPERTIES, INC., dba Cut & Ready Foods, Debtor CONSOLIDATED MARKETING, INC., Appellant, v. MARVIN PROPERTIES, INC., dba Cut & Ready Foods; Bank of California, Appellees.

No. 87-2488.

United States Court of Appeals Ninth Circuit.

Argued May 11, 1988.

Submitted Aug. 8, 1988.

Decided Aug. 19, 1988.

Robert W. Shapiro, King, Johnson and Shapiro, Oakland, Cal., for appellant.

Duane M. Geck, Severson, Werson, Berke and Melchior, San Francisco, Cal., for appellees.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel.

Before BROWNING, ALARCON and NORRIS, Circuit Judges.

ALARCON, Circuit Judge:

In this adversary proceeding in bankruptcy, plaintiff-appellant Consolidated Marketing, Inc. (Consolidated) appeals from a Bankruptcy Appellate Panel (BAP) decision affirming a bankruptcy court order denying its motion for summary judgment and granting summary judgment for defendant-appellee Bank of California (BankCal). Consolidated contends that the bankruptcy court erred when it found that Consolidated had not given adequate notice to Marvin Properties, Inc., dba Cut & Ready Foods (debtor), to perfect a statutory trust under the Perishable Agricultural Commodities Act (PACA), 7 U.S.C. Sec. 499e(c)(3) (Supp. III 1985).

We must decide whether section 499e(c)(3) requires that a seller give notice to a buyer directly in order to perfect a statutory trust.

I

The facts in this case are undisputed. Consolidated sells perishable commodities. At issue in this action are commodities Consolidated sold to the debtor on credit between December 10, 1985 and February 4, 1986. The debtor failed to pay for the goods in a timely manner. After the debtor failed to pay, Consolidated sought to obtain a PACA statutory trust on the proceeds from the sale of the perishable commodities.

It is undisputed that (1) Consolidated filed a notice of its intent to preserve PACA trust benefits with the Secretary of Agriculture (Secretary), United States Department of Agriculture (USDA), (2) that Consolidated did not send a similar notice to the debtor, (3) that the USDA sent a letter to Consolidated acknowledging receipt of the notice and sent a copy of the letter to Consolidated to the debtor, and (4) that the debtor had actual knowledge that Consolidated had filed a notice of intent to preserve PACA trust benefits with the Secretary. There is a question as to whether the debtor ever received a copy of the actual letter Consolidated sent to the Secretary. Consolidated states that it is "undisputed that the debtor received [Consolidated's] written notice of intent to preserve trust assets from the Department of Agriculture." BankCal contends that "[t]his is inaccurate. The Department of Agriculture sent the Debtor only a copy of the letter to Consolidated, which letter acknowledges receipt of the notice of intent." (Emphasis in original).

On February 13, 1986, the debtor filed for relief under Chapter 11 of the Bankruptcy Code, BankCal, who had a perfected secured interest in the debtor's inventory and proceeds, obtained an order from the bankruptcy court granting relief from the automatic stay and allowing it to foreclose upon its security interest in the debtor's inventory, which included property Consolidated claimed as belonging to its PACA trust.

On May 27, 1986, Consolidated filed a complaint in bankruptcy court, initiating an adversary proceeding seeking to enforce a PACA statutory trust. Consolidated named the debtor, Robert Crane, vice-president of debtor, Marvin Feinstein, president of debtor, and BankCal. BankCal was included because it was a secured creditor of the debtor and had possession of the property Consolidated sought for the trust, the debtor's inventory and proceeds. BankCal answered the complaint on July 7, 1986.

On August 8, 1986, Consolidated filed a motion for summary judgment. In its motion, Consolidated argued that it had fulfilled the requirements in PACA, 7 U.S.C. Sec. 499e(c)(3), necessary to establish a statutory trust, and thus, was entitled to the property in the possession of BankCal that belonged in the trust. Consolidated claimed that the property in a PACA trust is not part of the debtor's estate but is "for the sole benefit of the unpaid seller."

On August 19, 1986, BankCal filed its opposition to the motion for summary judgment. BankCal argued that Consolidated failed to show that it sent written notice of its intent to establish a PACA trust to the debtor. According to BankCal, Consolidated's "failure to comply with the regulations was fatal to its claim to benefits under the trust." Because Consolidated had not met its burden of making a prima facie case, BankCal argued, summary judgment for Consolidated would be improper.

On August 23, 1986, the debtor filed a statement that it would file no opposition to the motion for summary judgment.

On October 20, 1986, the bankruptcy court heard argument on Consolidated's motion and requested simultaneous supplemental briefing on the issue of the type of notice required to preserve a trust under PACA. On January 8, 1987, the bankruptcy court denied Consolidated's motion for summary judgment and sua sponte granted summary judgment in favor of BankCal finding that PACA requires that Consolidated give written notice directly to the debtor in order to preserve a PACA trust. Consolidated appealed the bankruptcy court decision to the BAP. On July 17, 1987, the BAP affirmed the bankruptcy court's decision. In re Marvin Properties, Inc., 76 B.R. 150 (9th Cir. BAP 1987). Consolidated appeals this decision.

II

This court "review[s] de novo the bankruptcy court's grant of summary judgment." In re Center Wholesale, Inc., 788 F.2d 541, 542 (9th Cir.1986) (citing In re Daley, 776 F.2d 834, 836 (9th Cir.1985), cert. denied, 476 U.S. 1159, 106 S.Ct. 2279, 90 L.Ed.2d 721 (1986)).

Section 499e(c)(3) of PACA establishes a procedure whereby a seller of perishable commodities can establish a trust for its own benefit on the commodities it sold on credit and on any proceeds of the buyer from subsequent sale of those proceeds. Section 499e(c)(3) states in pertinent part:

The unpaid supplier, seller or agent shall lose the benefits of such trust unless such person has given written notice of intent to preserve the benefits of the trust to the commission merchant, dealer, or broker and has filed such notice with the Secretary [of Agriculture]....

The bankruptcy court interpreted this provision "to require the seller to send written notice directly to both the debtor and the Secretary in all instances."

In its opening brief, Consolidated argues that the USDA's regulations implementing section 499e(c) and the legislative history of PACA show that section 499e(c) "merely require[s] that written notice be given to the debtor. There is no requirement that the unpaid seller must be the entity to give the written notice. Therefore, the trust was properly perfected when the debtor received the written notice in a timely manner."

No case has answered the question presented in this action: Whether section 499e(c)(3) requires that written notice be given by the seller directly to the buyer, or whether the notice requirement is satisfied as long as the buyer receives actual notice, no matter who gives it to it.

The Supreme Court has held that

[l]egislative history can be a legitimate guide to a statutory purpose obscured by ambiguity, but "[i]n the absence of a 'clearly expressed legislative intention to the contrary,' the language of the statute itself 'must be ordinarily regarded as...