Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Inc. v. Genecco Produce Inc.

United States Court of Appeals, Second Circuit

January 9, 2019

The PACA Trust Creditors of Lenny Perry's Produce, Inc., Plaintiffs-Appellees-Cross-Appellants,
v.
Genecco Produce Inc., David Genecco, Defendants-Appellants-Cross-Appellees.[*]

          Submitted: September 5, 2018

         The plaintiffs brought an adversary proceeding in the United States Bankruptcy Court for the Western District of New York alleging that the defendants wrongfully failed to pay the debtor Lenny Perry's Produce, Inc., for produce held in trust for the plaintiffs, in violation of the Perishable Agricultural Commodities Act, 7 U.S.C. § 499. The United States District Court for the Western District of New York (William M. Skretny, Judge) adopted a bankruptcy judge's report and recommendation (Michael J. Kaplan, Bankruptcy Judge) that summary judgment be granted to the plaintiffs in the proceeding but that the defendants receive a pro rata share of assets of the trust established under the Act. We agree with the bankruptcy judge and district court. Because assets subject to the Act are held in a "floating" trust for the benefit of unpaid produce suppliers and never become part of a bankruptcy estate, when a purchaser of produce files for bankruptcy under Chapter 7, a creditor covered by the Act's provisions is entitled to a pro rata share of trust assets, but not to a complete offset of mutual debts between it and the bankrupt. Here, the defendants elected not to file a proof of claim after the district court issued a claims process order under the Act. Nevertheless, they preserved their PACA claims by providing statutorily required notice to the debtor in connection with each pre-bankruptcy sale of fresh produce; filed a proof of claim with the bankruptcy court before the district court had issued the claims process order; and reasonably, although mistakenly, thought that they could vindicate their rights as creditors using a bankruptcy offset. Under those circumstances, we conclude that the district court did not err in awarding the defendants a pro rata share of the PACA trust assets.

         The district court's decision is therefore:

         AFFIRMED.

          David L. Rasmussen, Mallory Kass Smith, Davidson Fink LLP, Rochester, New York, for Defendants-Appellants-Cross-Appellees.

          Christopher M. Corrigan, Martyn & Associates, Cleveland, Ohio, for Plaintiffs- Appellees-Cross-Appellants.

          Before: Sack, Raggi, and Chin, Circuit Judges.

          Sack, Circuit Judge.

         The plaintiffs and the defendants are creditors of debtor Lenny Perry's Produce, Inc. ("LPP"). Between 2005 and 2008, defendant Genecco Produce, Inc., ("GPI") and debtor LPP regularly sold produce to one another. Because the goods were perishable agricultural commodities, these transactions were governed by the federal Perishable Agricultural Commodities Act, 7 U.S.C. § 499 ("PACA").

         Instead of paying each other after each transaction, GPI and LPP accumulated mutual debts intended to offset one another. By the end of 2008, those debts totaled $204, 774.88, owed by GPI to LPP, and $263, 061.92, owed by LPP to GPI - a net balance of $58, 287.04 in GPI's favor.

         On January 27, 2009, LPP filed for bankruptcy protection under Chapter 7 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Western District of New York. The plaintiffs, also unpaid sellers of perishable agricultural commodities to LPP, brought an adversary proceeding against the defendants in the bankruptcy court. They alleged that the $204, 774.88 owed by GPI to LPP constituted assets of a trust that arose for their benefit under the terms of PACA ("PACA Trust"). In response, the defendants asserted that federal bankruptcy law, 11 U.S.C. § 553(a), and New York State law, N.Y. Debt. & Cred. L. § 151, entitled them to a complete offset of any amount otherwise due to the PACA Trust by amounts that had been due to the defendants from LPP.

         On June 7, 2017, the United States District Court for the Western District of New York (William M. Skretny, Judge) entered a judgment adopting the bankruptcy judge's report and recommendation (Michael J. Kaplan, Bankruptcy Judge) recommending that summary judgment be granted to the plaintiffs. The district court concluded that the defendants were not entitled to a full offset of their mutual unpaid debts, but only to a pro rata share of the PACA Trust along with other unpaid LPP produce suppliers.

         The defendants argue that the district court erred because New York State law and federal bankruptcy law entitle them to a complete offset of any amounts they owed LPP or the PACA Trust; in the alternative, they claim that questions of fact regarding the transfer of accounts receivable into the PACA Trust render the district court's grant of summary judgment improper.

         We disagree. Because PACA assets are held in trust for the benefit of unpaid produce suppliers generally and never become part of a bankruptcy estate, and because such PACA creditors enjoy priority over non-PACA creditors, the defendants' offset defense under section 553 of the U.S. Bankruptcy Code and New York State law is unavailing. The district court therefore correctly found that the plaintiffs' claims against the defendants are not subject to the statutory offset sought by the defendants.

         Meanwhile, the plaintiffs assert that the district court erred in permitting the defendants to recover even a pro rata share of the PACA Trust. The plaintiffs do not dispute that the defendants, like the plaintiffs, are PACA creditors. Rather, they contend that the defendants are barred from recovery because they did not file a proof of claim pursuant to the district court's claims procedure order ("Claims Procedure Order"), which established deadlines for the plaintiffs' counsel to issue written notice to potential PACA claimants and for prospective claimants to file proofs of claim.

         We conclude otherwise. The defendants preserved their PACA claims by providing statutorily required notice to the debtor in each invoice at issue and filed a proof of claim with the bankruptcy court before the district court had issued the PACA Claims Procedure Order. Based at least, in part, on ambiguities in that Order, they reasonably, although mistakenly, thought that they could vindicate their rights as PACA creditors using a bankruptcy offset and elected not to file a PACA proof of claim. Under these circumstances, as the district court correctly concluded, PACA's statutory purpose is best realized if the defendants are permitted to collect pro rata shares of the PACA assets. The district court did not err in allowing the defendants to recover their pro rata share.

         The judgment of the district court is therefore affirmed.

         BACKGROUND

         General Factual Background

         At all relevant times, GPI, and LPP before it filed for bankruptcy, were merchants of perishable agricultural commodities operating out of the Niagara Frontier Food Terminal in Buffalo, New York. Between September 2005 and October 2008, LPP and GPI regularly sold produce to one another for resale to their respective customers. In connection with each transaction, the ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.