Merchants Grain, Inc. By and Through Mahern, Matter of, 95-2625
| Decision Date | 27 August 1996 |
| Docket Number | No. 95-2625,95-2625 |
| Citation | 93 F.3d 1347 |
| Parties | 36 Collier Bankr.Cas.2d 840, 29 Bankr.Ct.Dec. 877 In the Matter of MERCHANTS GRAIN, INCORPORATED, By and Through receiver, Edmund M. MAHERN, Debtor. Appeal of Edmund M. MAHERN, Trustee for Merchants Grain, Incorporated. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Joseph H. Yeager, Jr. (argued), James M. Carr, Wendy W. Ponader, Baker & Daniels, Indianapolis, IN, for Edmund M. Mahern, Merchants Grain, Incorporated.
J. Anthony Logan, Wright & Logan, Dublin, OH, for Mark Atkins, Chris Atkins, Charles Dresbach & Son, Gary Graham, John Perry, Larry Starling, Linda Andrews, Larry Augenstein, Robert Belt, Candlehill Farm, Robert Thomas, William Thomas, Jr., Scott Dever.
John Perry, Delaware, OH, pro se.
Brian Shonk, Lancaster, OH, for Phil Leitnaker.
Dave Shade, Delaware, OH, for Ohiogro, Incorporated.
John Timmons, Lockbourne, OH, pro se.John Street, Chillicothe, OH, for Herron Farms.
Rankin M. Gibson, Columbus, OH, for Rene Schreck.
Richard T. Ricketts, Michelle T. Sutter, Ricketts & Onda Company, Columbus, OH, for Dick Brenner.
William B. Logan, Jr. (argued), Kenneth M. Richards, Luper, Wolinetz, Sheriff & Neidenthal, Columbus, OH, for Ohio Agricultural Fund.
Kenneth M. Richards, Luper, Wolinetz, Sheriff & Neidenthal, Columbus, OH, Cheryl Minsterman (argued), Ohio Department of Agriculture, Reynoldsburg, OH, for Ohio Department of Agriculture.
Glen Elfrink, Hilliard, OH, pro se.
Jack Utzinger, Grove City, OH, pro se.
Before CUMMINGS, BAUER, and MANION, Circuit Judges.
The bankruptcy trustee for Merchants Grain, Inc. filed this action to recover payments made to farmers for the sale of their grain and to include those payments in the bankruptcy estate. The bankruptcy court and the district court ruled for the farmers. We affirm.
Before it filed for bankruptcy on May 9, 1991, Merchants Grain, Inc. ("MGI") owned and operated grain storage and marketing facilities in six states, including one in Ohio. The Ohio facility located in Columbus, was a grain terminal facility providing both storage and transportation facilities. It had significantly more storage capacity than a typical grain elevator facility and was one of only two facilities of its capacity servicing central Ohio.
MGI offered several types of grain marketing contracts to farmers. In one of these, a delayed pricing contract, the farmer delivers grain to the elevator at harvest time but is not immediately paid for it. Instead, on a later date specified by the farmer, the elevator places the grain on the market and sells it at the going price. After subtracting the elevator operator's share, the proceeds from the sale are transferred to the farmer. Of course an elevator operator cannot differentiate one farmer's grain from another's; the grain itself is fungible. The elevator simply owes the farmer for the quantity of grain deposited. The defendants in this case were all farmers who had delivered grain to MGI under a delayed pricing agreement.
Among other provisions, the delayed pricing agreement between MGI and grain depositors stipulated that title to the grain transferred to MGI upon delivery and that the depositor became a "common creditor" for the value of the grain. However, the contract alone did not define the entire relationship between MGI and the depositors at its Columbus, Ohio facility. State law also governed the grain transactions.
Ohio provides additional protection to farmers who market grain through Ohio grain elevators and terminals. Among those protections, Ohio law creates a statutory lien on the grain on behalf of the grain depositor. Ohio Rev.Code § 926.021. In addition, Ohio grants its Department of Agriculture and its Director of Agriculture specific powers to regulate, license, and otherwise oversee the operations of grain storage and marketing facilities. Such facilities that are engaged in the business of agricultural product handling are referred to in the Ohio statutes as "agricultural commodities handlers." See Ohio Rev.Code § 926 et seq. (regulating agricultural commodity handlers). Included in its oversight authority the Director has the power to revoke, suspend, or conditionally suspend the license of an agricultural commodity handler that does not maintain statutorily sufficient assets to cover the outstanding receipts for grain deposits. Ohio requires agriculture commodities handlers to maintain a positive current net worth based on a formula involving the grain deposits over the preceding 12-month period. Ohio Rev.Code § 926.06(B).
As part of its oversight function, the Department of Agriculture reviewed MGI's financial statements, which in early September, 1990, revealed a negative current net worth of over $6,000,000. Rather than suspend MGI's license to operate its Ohio facility, the Department extended MGI several options for rectifying the violation. Although MGI and the Department exchanged correspondence over the next several months, MGI did not resolve its financial problem. The Department did not wish to suspend MGI's license because the fall grain harvest was under way and MGI's facility was vital to the central Ohio agricultural community. Without a facility to store grain for delayed pricing contracts, grain producers would be forced to cash-sale their grain at harvest time resulting in significantly lower prices and serious financial losses.
By November 8, 1990, MGI still had not complied with the statutory financial requirements and the Director of Agriculture conditionally suspended MGI's agriculture commodity handler's license pursuant to Ohio Rev.Code § 926.10. The conditional suspension restricted MGI's Columbus, Ohio operation but permitted the facility to continue acquiring grain deposits. The Department required MGI to cover 100 percent of all grain obligations either with grain on hand or cash deposited in a segregated bank account located in Ohio. Between November and mid-December, the Department of Agriculture increased its oversight of MGI.
In late December, 1990, MGI issued a check to the federal government which was returned due to insufficient funds. When the Department was notified of this development, it immediately initiated a full examination of MGI's grain records and inventories. Before the Department completed its examination, MGI closed the Columbus facility, which at that time had close to one million bushels of grain on deposit.
On January 7, 1991, the Director fully suspended MGI's license. The Department of Agriculture and MGI thereafter reached a settlement agreement under which MGI was permitted to continue operating its Columbus facility under Department oversight of its day-to-day operations in order to sell the grain it had on deposit. The proceeds from the grain sales were deposited in one of three joint escrow accounts on which checks could be drawn only if they were signed by both the Department and MGI. While the agreement permitted MGI to sell the grain it had on deposit, it required MGI to consult with the Department regarding the sale price. The Department arranged for all grain depositors with delayed price contracts to accept payment terms providing the market price on the day of sale as their contract price. The Department verified the number of bushels credited to each depositor and the amount of money owed based on that credit, the negotiated sales terms, and the resulting sales price. The Department credited MGI with its operating margin on the sale of the grain before paying the grain depositors.
Under Department of Agriculture oversight, MGI successfully sold 975,000 bushels of grain, collecting into the escrow accounts sufficient funds to pay its grain depositors. After paying the depositors, the Department on June 24, 1991 released over $135,000 (and over $324,000 worth of grain) to MGI, which had filed for Chapter 11 bankruptcy on May 9, 1991.
The bankruptcy trustee for MGI ("trustee") filed this action in federal bankruptcy court to avoid and bring back into the bankruptcy estate, under § 547(b) of the federal Bankruptcy Code, 11 U.S.C. § 547, those funds transferred from MGI to the depositors within the ninety days preceding MGI's May 9, 1991 bankruptcy "petition date." 1 The grain depositors maintained that due to the valid statutory agricultural commodity lien, MGI had no "interest" in the grain and that, in any event, the funds transferred to them for their grain deposits were no more than they would have received had the distribution been made through bankruptcy, either point preventing avoidance under § 547(b). The trustee argued that the Ohio statutory lien was avoidable both under § 545(1) of the Bankruptcy Code because it became effective only when MGI became insolvent, and under § 545(2) because it was not perfected against a bona fide purchaser on the date MGI filed for bankruptcy.
The bankruptcy court entered summary judgment for the farmers, concluding that under Ohio Revised Code § 926.021 the farmers had a valid lien on the grain which arose upon delivery of the grain by the farmers to MGI. The court determined that the lien created by Ohio Rev.Code § 926.021 was a statutory lien pursuant to the Bankruptcy Code and could be avoided by the trustee only through application of § 545 subsections (1) or (2).
The bankruptcy court concluded that neither subsection permitted the trustee to avoid the agricultural commodity liens arising under § 926.021. First, the liens could not be avoided under § 545(2) because the property to which they had attached was not in MGI's possession on the date it filed for bankruptcy. Because § 545(2) gives the trustee the powers of a bona fide purchaser "at the time of the commencement of the case," and because there was no longer any property over which the bona fide purchaser might assert his rights, the bankruptcy court concluded § 545(2) was inapplicable.
The bankruptcy...
To continue reading
Request your trial
-
Arrowsmith v. Mallory (In re Health Diagnostic Lab., Inc.)
...In re Health Diagnostics Laboratory, Inc., 2017 WL 1194647, at *8 (Bankr. E.D. Va. Mar. 30, 2017) (citing In re Merchants Grain by & Through Mahern, 93 F.3d 1347, 1352 (7th Cir. 1996) (internal quotation omitted)). 48. The Bankruptcy Code defines the term "insider" at 11 U.S.C. § 101(31). T......
-
Arrowsmith v. Lemberg Law, LLC (In re Health Diagnostics Lab., Inc.)
...the bankruptcy estate of something which could otherwise be used to satisfy the claims of creditors." In re Merchants Grain , Inc. by & Through Mahern, 93 F.3d 1347, 1352 (7th Cir. 1996)(internal quotation omitted). The term "transfer," on the other hand, is defined in the Bankruptcy Code. ......
-
In re Pitts
...the constitutionality of § 106(a) has become moot due to the resolution of a related proceeding on other grounds. In re Merchants Grain, Inc., 93 F.3d 1347, 1351 (7th Cir.1996), cert. denied, 519 U.S. 1111, 117 S.Ct. 948, 136 L.Ed.2d 837 (1997); see also Sparkman v. Florida (In re York-Hann......
-
Sherman v. OTA Franchise Corp. (In re Essential Fin. Educ., Inc.)
...2020) (Morris, J.).114 In re Criswell , 102 F.3d 1411, 1416 (5th Cir. 1997) ; Jenkins , 617 B.R. at 104–05 (citing In re Merchants Grain, Inc. , 93 F.3d 1347 (7th Cir. 1996) ).115 11 U.S.C. § 541(a)(1).116 TUFTA § 24.002(2)(B).117 See Cage v. Wyo-Ben, Inc. (In re Ramba, Inc.) , 437 F.3d 457......