Memorandum of Decision Re: PACA Trust

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Decisions
IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA
In re SIX RIVERS PRODUCE, INC.,                                                                                       No. 97-11341                Debtor. ___________________________/ THE PRODUCE EXCHANGE, INC.,                Plaintiff,         v.                                                                                                                            A.P. No. 97-1164 SIX RIVERS PRODUCE, INC., et al.,                Defendants. ______________________________/
Memorandum
     Debtor Six Rivers Produce, Inc., ("Debtor") is a dealer in fruits and vegetables. Prior to bankruptcy, it purchased agricultural products from plaintiff The Produce Exchange, Inc.("TPE"), but did not pay for them. The debtor transferred the accounts receivable generated from the sale of TPE's products to defendant Six Rivers National Bank ("Bank") pursuant to a factoring agreement. In this adversary proceeding, TPE asserts its rights under the Perishable Agricultural Commodities Act ("PACA"), 7 U.S.C. section 499 et seq. Its motion for summary judgment is now before the court.      The court notes that this adversary proceeding is improper to the extent it seeks a money judgment against the Debtor. Claims against a debtor in bankruptcy are asserted by filing a proof of claim; a creditor cannot obtain a higher priority by suing a debtor in bankruptcy court. TPE has made no showing that it is entitled to meaningful injunctive or non-monetary relief against the Debtor; the deed has been done.      The real dispute here is between TPE and the Bank. As part of its financing of the Debtor's receivables, the Bank purchased and collected receivables generated by the sale of PTE's produce. The real issue is whether the Bank must turn this money over to PTE.      A bank which collects receivables of a debtor subject to PACA rights is obligated to honor those rights. In re Richmond Produce Co., Inc., 112 B.R. 364 (Bkrtcy.N.D.Cal.1990). The court is unpersuaded by the Bank's argument that it is a bona fide purchaser rather than a financer. Its agreement with the Debtor was a typical loan device. The fact that the Debtor was required to "buy back" any uncollectible receivables "purchased" by the Bank is alone enough to belie the Bank's position that in substance it was anything other than a lender.      The court also sees as irrelevant that the Debtor may have used the Bank's money to pay other PACA claimants. It did not pay TPE, which is all TPE need show. The court also finds no prejudicial delays on TPE's part.      Defendants are not liable for TPE's attorneys' fees. TPE may collect such fees out of a common fund it may have created, to the extent any third parties are benefitted by this ruling, after proper notice to those parties. TPE shall have judgment against defendants James and Judi Gupton and the Bank only in the amount of $58,625.31, together with interest at the federal rate from and after June 20, 1997, and costs of suit.      Insofar as the complaint seeks a monetary recovery against the Debtor it will be dismissed without prejudice to proper claims procedures. The court sees no basis for any sort of priority claim, but any such assertion must be made on notice to all creditors and is a base case matter not properly raised in an adversary proceeding. See section 503(b) of the Bankruptcy Code (requiring notice before a priority claim can be considered) and FRBP 7001.      Subject to the above limitations, TPE's motion for summary judgment will be granted. Counsel for TPE shall submit an appropriate form of order and a form of judgment.
Dated: January 14, 1998                                                                                        _______________________                                                                                                                            Alan Jaroslovsky                                                                                                                            U. S. Bankruptcy