Rawson Food Service, Inc., In re

• Decision Date: 14 June 1988
• Docket Number: No. 87-3466,FLAV-O-RIC,INC,87-3466
• Citation: 846 F.2d 1343
• Parties: , Bankr. L. Rep. P 72,343, 6 UCC Rep.Serv.2d 128 In re RAWSON FOOD SERVICE, INC., Debtor., Plaintiff-Appellant, Cross-Appellee, v. RAWSON FOOD SERVICE, INC., Defendant-Appellee, Cross-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1343

846 F.2d 1343

17 Bankr.Ct.Dec. 1389, Bankr. L. Rep. P 72,343,

6 UCC Rep.Serv.2d 128

In re RAWSON FOOD SERVICE, INC., Debtor FLAV-O-RICH, INC., Plaintiff-Appellant, Cross-Appellee, v. RAWSON FOOD SERVICE, INC., Defendant-Appellee, Cross-Appellant.

No. 87-3466.

United States Court of Appeals, Eleventh Circuit.

June 14, 1988.

Lance Paul Cohen, Janet H. Thurston, Cohen & Thurston, P.A., Jacksonville, Fla., for plaintiff-appellant, cross-appellee.

Marshall W. Liptak, Jacksonville, Fla., for defendant-appellee, cross-appellant.

Appeals from the United States District Court for the Middle District of Florida.

Before VANCE and ANDERSON, Circuit Judges, and BROWN ^*, Senior Circuit Judge.

ANDERSON, Circuit Judge:

The sole issue raised in this bankruptcy appeal is whether, in a reclamation action brought pursuant to 11 U.S.C. Sec. 546(c), the seller must prove as part of its prima facie case that the debtor possessed the goods the seller seeks to reclaim at the time the reclamation demand was made. We conclude that an implicit requirement of a Sec. 546(c) reclamation claim is that the debtor must possess the goods when the reclamation demand is made and therefore that the seller must prove possession as part of its prima facie case. Thus, we affirm.

I. BACKGROUND

Flav-O-Rich Inc. ("Flav-O-Rich") sold and delivered milk products and ice cream ("reclamation goods") to Rawson Food Service, Inc. ("Rawson"), a retail food chain, daily between February 11 and February 19, 1986. The aggregate value of the delivered products was approximately $102,000. Rawson filed a petition under Chapter 11 of the Bankruptcy Code on February 19, 1986. The following day, Flav-O-Rich made a written demand for reclamation of the goods it had delivered to Rawson on or after February 11, 1986. Rawson did not comply with the reclamation demand.

Consequently, Flav-O-Rich commenced this reclamation action in the Bankruptcy Court for the Middle District of Florida on February 27, 1986. Pursuant to 11 U.S.C. Sec. 546(c) ¹ and Fla.Stat. Sec. 672.2-702(2) ², Flav-O-Rich sought either an order requiring Rawson to return the reclamation goods or, in the alternative, an order granting it either an administrative priority or a lien on Rawson's unencumbered assets in an amount sufficient to satisfy its reclamation demand. Flav-O-Rich's complaint alleged that Rawson had entered Chapter 11 proceedings February 19, 1986, that in the ten days prior to the reclamation demand Flav-O-Rich had sold and delivered the reclamation goods to Rawson, that Rawson was insolvent during the entire period in which the reclamation goods were sold and delivered, that Flav-O-Rich hand-delivered a written demand for reclamation to Rawson on February 20, 1986, and that Rawson had failed to return the reclamation goods.

In its answer to Flav-O-Rich's complaint, Rawson denied that it was insolvent when the goods were delivered and claimed that it had no knowledge of the total value or delivery dates of the reclamation goods. Paragraph 10 of the answer read as follows:

Affirmative Defenses

10. The Complaint for Seller Reclamation should be dismissed for failure to state a claim upon which relief can be granted, including but not limited to the reason that plaintiff has failed to allege that RFS [Rawson] was in possession of the goods when the reclamation demand was made.

Following discovery, the parties stipulated that Flav-O-Rich's reclamation demand met the requirements of Sec. 546(c) and Fla.Stat. Sec. 672.2-702(2) ³, that Flav-O-Rich would not be required to prove Rawson's insolvency, that Rawson took physical possession of the milk products and ice cream, and that Rawson did not comply with the reclamation demand. The parties also stipulated as to the value of the reclamation goods.

The trial commenced in August 1986, with Flav-O-Rich's presentation of its case-in-chief. Flav-O-Rich presented evidence which showed that Rawson took possession of the reclamation goods between two and ten days prior to receiving the reclamation demand. Flav-O-Rich also presented evidence which showed that Rawson did not have a daily inventory system which would show a daily inventory of products categorized by supplier. Flav-O-Rich also offered evidence which showed that Rawson made no effort to inventory or segregate the reclamation goods from other store products following its receipt of the reclamation demand. However, the record also indicates that Flav-O-Rich had available, but did not utilize, discovery tools which could have adduced evidence relevant to the crucial issue of what reclamation goods remained in possession on the date Rawson received the reclamation demand. ⁴ No evidence was presented to show that Rawson possessed some or all of the reclamation goods when it received the reclamation demand.

At the conclusion of Flav-O-Rich's case-in-chief, Rawson moved for an involuntary dismissal of the case pursuant to Bankruptcy Rule 7041. ⁵ Rawson contended that Flav-O-Rich failed to present a prima facie case for reclamation because it did not present any proof that Rawson possessed the reclamation goods when it received the reclamation demand. The Bankruptcy Court granted the involuntary dismissal and the District Court affirmed. Flav-O-Rich now appeals.

II. DISCUSSION

The question before us is whether the Bankruptcy Court, affirmed by the district court, erred in its conclusion that Flav-O-Rich failed to present a claim upon which relief could be granted because it did not present any proof in its case-in-chief that Rawson possessed the reclamation goods when it received Flav-O-Rich's reclamation demand. To determine the requisite elements of a seller's prima facie case for reclamation, we must look to Sec. 546(c) of the Bankruptcy Code and the case law interpreting it.

Section 546(c) of the Bankruptcy Code provides the exclusive remedy for a seller who seeks to reclaim goods from a debtor in bankruptcy. In re Rozel Industries, Inc., 74 B.R. 643, 646 (Bkrtcy.N.D.Ill.1987). ⁶ Although the Sec. 546(c) reclamation right is "akin to that provided by the Uniform Commercial Code," ⁷ In re Deephouse Equipment Co., Inc., 22 B.R. 255, 258 (Bkrtcy.D.Conn.1982), compliance with the U.C.C. requirements is insufficient to allow reclamation unless the Sec. 546(c) requirements also are met. Id.; In re Charter Co., 52 B.R. 263, 265-66 (Bkrtcy.M.D.Fla.1985) ("Charter I "); In re Flagstaff Foodservice Corp., 56 B.R. 899, 909 (Bkrtcy.S.D.N.Y.1986) ("Flagstaff II "). The primary differences between Sec. 546(c) of the Bankruptcy Code and Sec. 2-702(2) of the U.C.C. are that the U.C.C. waives the ten-day prior notice requirement if the buyer fraudulently misrepresents its solvency to the seller within three months prior to the receipt of the goods and that the U.C.C. does not specify that the reclamation demand must be in writing. See In re Flagstaff Foodservice Corp., 14 B.R. 462, 467 (Bkrtcy.S.D.N.Y.1981) ("Flagstaff I "); Matter of AIC Photo, Inc., 57 B.R. 56, 59 (Bkrtcy.E.D.N.Y.1985); In re Landy Beef Co., Inc., 30 B.R. 19, 20 (Bkrtcy.D.Mass.1983).

It is settled in the case law that the seller is required to establish the following in order to reclaim goods from a debtor in bankruptcy pursuant to Sec. 546(c): (1) a statutory or common law right to reclaim the goods; (2) the debtor's insolvency when it received the goods; and (3) a written reclamation demand made within ten days after the debtor received the goods. See, e.g., In re New York Wholesale Distributors Corp., 58 B.R. 497, 500 (Bkrtcy.S.D.N.Y.1986) ("the conditions imposed by Code Sec. 546(c) on a seller who seeks to recover goods sold and delivered to a debtor may be briefly summarized as follows...." (listing above requirements) (emphasis added)); In re Rozel Industries, Inc., 74 B.R. at 646 ("the seller must meet the following requirements...." (listing above requirements) (emphasis added)); Flagstaff II, 56 B.R. at 905. The parties agree that all of the above requirements are satisfied in this case. ⁸

It also is well established that a seller cannot reclaim goods which the debtor does not possess when it receives the reclamation demand. See In re Coupon Carriers Co., 77 B.R. 650, 652 (N.D.Ill.1987); In re Wheeling-Pittsburgh Steel Corp., 74 B.R. 656, 659 (Bkrtcy.W.D.Pa.1987) ("the seller may only reclaim 'the goods' in the buyer's possession on the date the written demand for reclamation is made."); In re Bosler Supply Group, 74 B.R. 250, 252 (N.D.Ill.1987) ("various courts have also required that the goods be in the debtor's possession at the time of the demand."); Archer Daniels Midland Co. v. Charter International Oil Co., 60 B.R. 854, 856 (M.D.Fla.1986) ("the predominant view allows a seller to reclaim only those goods which are identifiable and in the buyer's possession at the time the reclamation demand is received."); In re New York Wholesale Distributors Corp., 58 B.R. at 500 ("the courts have consistently required that the goods still be in the debtor's possession at the time the demand for reclamation is received."); Flagstaff II, 56 B.R. at 908 n. 7 ("It is well settled that the seller may only reclaim such goods actually on hand at the time of the demand."); Oliver Rubber Co. v. Griffin Retreading Co., Inc., 56 B.R. 239, 241 (D.Minn.1985) ("A seller seeking reclamation ... must make a demand for the goods ... while the goods remained in the insolvent buyer's possession."), aff'd sub nom. In Re: Griffin Retreading Co., 795 F.2d 676 (8th Cir.1986); In re Charter Co., 54 B.R. 91, 92 (Bkrtcy.M.D.Fla.1985) ("Charter II ") ("Implicit within Sec. 546 is the additional requirement that the goods be identifiable and in the possession of the debtor on the day of demand."); In re Lawrence Paperboard Corp., 52 B.R. 907, 910 (Bkrtcy.D.Mass.1985) ("In addition, the goods must actually exist and be intact in the hands of the debtor at the time of the demand...."); Charter I, 52 B.R. at 265; In re Furniture...