In Re L. Natural Foods Corp.

199 B.R. 882, 1996 Bankr. LEXIS 1099, 1996 WL 509323
CourtUnited States Bankruptcy Court, E.D. Pennsylvania
DecidedSeptember 6, 1996
Docket19-11156
StatusPublished
Cited by4 cases

This text of 199 B.R. 882 (In Re L. Natural Foods Corp.) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, E.D. Pennsylvania primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In Re L. Natural Foods Corp., 199 B.R. 882, 1996 Bankr. LEXIS 1099, 1996 WL 509323 (Pa. 1996).

Opinion

OPINION

STEPHEN RASLAVICH, Bankruptcy Judge.

Introduction

Before the Court is the Motion of Bedemco Import Export, Inc. (“Bedemco”) for Relief From the Automatic Stay Pursuant to 11 U.S.C. 362(d), and for an Order Requiring the Turnover of Certain Monies that are Currently Being Held in Escrow by Midlantic Bank, N.A. (“Midlantic”), a secured creditor of debtor L. Natural Foods Corp. (“Debt- or”). Bedemco premises its entitlement to the funds under the Perishable Agricultural Commodities Act (“PACA” or the “Act”), 7 U.S.C. §§ 499a-499s, alleging that the es-crowed monies are proceeds that resulted from Midlantic’s sale of a certain inventory of the Debtor in dried apricots and prunes, product that Bedemco claims was subject to a statutory trust in its favor arising under the Act. Bedemco posits that its right to the escrowed monies under PACA is superior to any competing interest that Midlantic may have in the Debtor’s inventory generally.

A hearing on the Motion was held June 20, 1996. For the reasons set forth below, the *883 Court concludes that Bedemco does not hold a valid interest in the escrowed monies under PACA because the dried fruits in question do not qualify as “perishable agricultural commodities” within meaning of the Act. Accordingly, Bedemco’s Motion must be denied.

Jurisdictional Statement

The Court has jurisdiction over the parties and the subject matter of this core proceeding pursuant to 28 U.S.C. §§ 1834, 157(b)(1), (b)(2)(A), (G), (K) and (O).

Background

Bedemco. is in the business of importing and exporting dried fruits and nuts for sale to wholesale distributors in the United States and Canada. Its business operations are located in White Plains, New York. On November 8, 1995, Bedemco issued a document bearing the caption “Sales Confirmation” that confirmed the Debtor’s order of fifteen-hundred cartons of “Turkish Dried Apricots” at a cost of $46,536.00, delivered to the Debt- or’s warehouse. Exhibit “B-l”. The sale was on net thirty day credit terms. Id. At the time that it placed the order, the Debtor was operating as a wholesale distributor of dried fruits and nuts in Philadelphia, Pennsylvania. On or about January 5,1996, prior to the delivery of the dried apricots, the Debtor placed an order with Bedemco for twenty cartons of prunes at a non-delivered cost of $570.00. This sale was also on net thirty day credit terms. Exhibit “B-3”. The Debtor picked up the prunes on January 10, 1996. In connection with the prunes sale Bedemco issued invoice number 1999, dated January 10, 1996, in the amount of $570.00. Exhibit B^L Shortly thereafter, on January 18, 1996, the dried apricots arrived in this country and were delivered to the Debtor. In connection with that shipment, Bedemco issued invoice number 2012, dated January, 18,1996, in the amount of $46,536.00. Exhibit “B-2”.

The next month, however, on February 21, 1996, the Debtor filed a voluntaiy petition for relief under Chapter 11 of the United States Bankruptcy Code (“Code”). 11 U.S.C. §§ 101-1330. On April 9, 1996, the Debtor’s case was voluntarily converted to a proceeding under Chapter 7. It is not disputed that the Debtor failed to pay for either of the above purchases prior to filing its petition. Bedemco claims that the Debtor owes it $47,-106.00 for both invoices, plus interest and legal fees under the terms of the Sales Confirmation documents. Exhibits “B-1” and “B-3”.

Midlantic has filed a secured Proof of Claim in the amount of $148,727.78, claiming a blanket security interest in, among other things, all inventory, equipment and receivables of the Debtor. In its motion for relief from the automatic stay, filed on April 18, 1996, Midlantic alleged that its security interest covered various obligations of the Debtor, including those arising under a commercial term note to the Debtor dated November 28, 1994, an overdraft line of credit for the Debt- or’s checking account, and surety agreements that had been executed on behalf of two officers of the Debtor. Neither the amount of the debt owed to Midlantic, nor the validity of its security interest have been called into doubt by Bedemco. Midlantic requested, and was granted, an expedited hearing on its motion due to the alleged perishability of the Debtor’s inventory.

In its response to the motion, Bedemco did not oppose Midiantic’s request for relief from the automatic stay. Rather, Bedemco alleged the existence of a non-segregated floating trust arising under PACA, 7 U.S.C. § 499e(e)(2), which it claimed granted it a superior right to have the amounts owed by the Debtor satisfied out of the Debtor’s inventory of perishable agricultural commodities, products derived therefrom, and any receivables or proceeds resulting from their sale. Thus, while Bedemco did not specifically oppose the motion, it nonetheless requested that to the extent relief were to be granted, that the Order should be “without prejudice to Bedemco’s right, title and interest in the assets constituting the trust res [under 7 U.S.C. § 499e(c)(2) ] and which Order shall specifically preserve all such rights, title and interest.” Bedemco Response, at 3. By Order entered on April 26, 1996, the Court granted Midiantic’s motion allowing it to proceed with its state court remedies, including the liquidation of the inventory of *884 the Debtor, subject, however, to the rights, if any, of Bedemco under PACA. The Order specifically provided that the proceeds of any sale of the product were to be held in escrow by Midlantic pending resolution of Bedem-co's claims under PACA. Finally, in order to bring these claims to light the Order directed Bedemco to file a motion within thirty days asserting any claim it might have under PACA. The dried apricots and prunes were thereafter sold by Midlantic, for which it received payment in- the approximate amount of $29,000.00. 1 Transcript at 50. This sum is currently being held in escrow by Midlantic pursuant to the Order.

In response to the Court’s direction in the Order of April 26, 1996, Bedemco filed the instant motion seeking relief from the automatic stay and for turnover of the funds being held by Midlantic. At the hearing on the motion, held on June 20, 1996, Bedemco argued, inter alia, that the sale of the dried apricots and prunes to the Debtor resulted in the creation of a statutory trust under PACA, 7 U.S.C. § 499e(c)(2), that entitles it to recover the amount owed for the purchase those items from the proceeds resulting from their liquidation, notwithstanding any security interest of Midlantic in the Debtor’s inventory generally.

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Bluebook (online)
199 B.R. 882, 1996 Bankr. LEXIS 1099, 1996 WL 509323, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-l-natural-foods-corp-paeb-1996.