Frazier v. Cit Group/Business Credit, Inc.

Filing 19

ORDER REVERSING the judgment of the United States Bankruptcy Court for the Southern District of Illinois. This case is REMANDED to the Bankruptcy Court for further proceedings consistent with this Order. Signed by Judge G. Patrick Murphy on 6/9/2011. (ssd)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS

In re:
Meadowbrook Farms Cooperative,
Debtor.
GREAT LAKES PORK, INC.,
JOHNSON-PATE PORK, INC., and
LEHMANN BROTHERS FARMS, LLC,
Appellants,
vs.
THE CIT GROUP/BUSINESS CREDIT,
INC.,
Appellee.

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CIVIL NO. 10-731-GPM

MEMORANDUM AND ORDER
MURPHY, District Judge:
This bankruptcy appeal came before the Court for oral argument on February 28, 2011, and
involves issues ancillary to the merits of an adversary proceeding decided by separate order on this
same date in civil case number 10-623-GPM. After oral argument, the parties supplemented the
record as ordered by this Court. Having fully considered all the papers on file and the arguments
presented, the Court rules as follows.
Factual Background
The facts underlying the adversary proceeding are summarized here to provide context for
the ancillary dispute currently before the Court. They are set forth in greater detail in the order on

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the merits of the adversary dispute issued in civil case number 10-623-GPM.
In March 2009, Meadowbrook Farms Cooperative (MFC or the Debtor) filed a petition for
Chapter 7 relief in the United States Bankruptcy Court for the Southern District of Illinois. The
Debtor was an agricultural cooperative, or packer, that purchased hogs for slaughtering and
processing. It packed and sold pork and pork products subject to the Packers and Stockyard Act
of 1921 (PSA), 7 U.S.C. §§ 181 et seq.1 Laura K. Grandy was appointed Bankruptcy Trustee for
the Debtor and later was succeeded by Dana Frazier. In June 2009, the Trustee filed a complaint
to determine the validity of claims to a lockbox fund held by the Trustee. As of February 26,
2010, the fund was valued at $2,278,745. The parties stipulated that the entirety of the fund was
derived from accounts receivable and proceeds from the sale of livestock inventory and meat and
meat food products derived from livestock purchased by the Debtor from certain livestock
producers.
Appellee CIT Group/Business Credit, Inc. (CIT) is an undisputed secured creditor of the
Debtor pursuant to a November 16, 2007, financing agreement. In July 2009, CIT answered the
Trustee’s complaint, filed a counterclaim against the Trustee asserting a first priority security
interest in the funds held by the Trustee, and filed a crossclaim for equitable estoppel against other
1

The statute provides, in part: (b) livestock, inventories, receivables and proceeds held by
packer in trust for benefit of unpaid cash sellers; time limitations; exempt packers; effect of
dishonored instrument; preservation of trust benefits by seller All livestock purchased by a
packer in cash sales … shall be held by such packer in trust for the benefit of all unpaid cash sellers
of such livestock until full payment has been received by such unpaid sellers … Provided, That the
unpaid seller shall lose the benefit of such trust if, in the event that a payment instrument has not
been received, within thirty days of the final date for making a payment under section 228b of this
title, or within fifteen business days after the seller has received notice that the payment instrument
promptly presented for payment has been dishonored, the seller has not preserved his trust under
this subsection. The trust shall be preserved by giving written notice to the packer and by filing
such notice with the Secretary. … (c) Definition of Cash Sale For the purpose of this section, a
cash sale means a sale in which the seller does not expressly extend credit to the buyer. 7 U.S.C.
§ 196.

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parties claiming an interest in the funds.
Great Lakes Pork, Inc., Johnson-Pate Pork, Inc., and Lehmann Brothers Farms, LLC (PSA
Claimants) are livestock producers that sold hogs to the Debtor. PSA Claimants also answered
the complaint, filed a counterclaim against the Trustee seeking funds protected under the PSA, and
a crossclaim against CIT seeking any funds protected by the PSA that had been paid over to CIT.
The issue presented by the adversary proceeding was whether sales made by PSA Claimants to the
Debtor after October 2008 are subject to the trust provisions of the PSA.
Following a trial, the Bankruptcy Court found, as a matter of fact, that beginning on or
about October 1, 2008, PSA Claimants began delivering additional hogs to the Debtor on cash
terms with no waiver and full retention of the producer trust protections under the PSA. The
Bankruptcy Court also found, as a matter of fact, that PSA Claimants were not paid for a total of
16,155 hogs valued at $1,815,477.51 that were delivered to the Debtor between December 11,
2008, and January 29, 2009.2 The Bankruptcy Court concluded that the additional hog sales are
to be treated as cash sales and, as such, PSA Claimants are entitled to first priority interest in the
lockbox funds held by the Trustee under the PSA’s trust protections and the applicable federal
regulations.3 CIT separately appealed the decision, and by separate order entered today in civil
case number 10-623-GPM, this Court affirms the Bankruptcy Court’s decision on the merits.
After deciding in favor of PSA Claimants on the merits, the Bankruptcy Court denied PSA
2

Great Lakes Pork, Inc. (Great Lakes) sold a total of 11, 733 additional cash hogs to the Debtor,
valued at $1,320,757.72; Johnson-Pate Pork, Inc. (Johnson-Pate) sold a total of 2,106 additional
hogs to the Debtor, valued at $246,302.83; Lehmann Brothers Farms, LLC (Lehmann) sold a total
of 2,316 additional cash hogs to the Debtor, valued at $248,416.96.
3

The Bankruptcy Court held that Great Lakes is entitled to a first priority share in the amount of
$1,320,757.72, Johnson-Pate is entitled to a first priority share in the amount of $246,302.83, and
Lehmann is entitled to a first priority share in the amount of $248,416.96.

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Claimants’ motion for interest and attorneys’ fees. Thereafter, PSA Claimants submitted their
bill of costs, which the Bankruptcy Court denied. PSA Claimants filed this appeal, seeking preand post-judgment interest on any funds entitled to PSA trust protection and attorneys’ fees. The
Bankruptcy Court also denied an application for compensation and reimbursement filed by the
Trustee, finding that the Trustee essentially worked on behalf of CIT and, therefore, the Trustee’s
services did not benefit the Debtor’s bankruptcy estate. The Trustee did not appeal that ruling and
does not take a position on either bankruptcy appeal filed in this Court.
ANALYSIS
Pursuant to 28 U.S.C. § 158(a), the federal district courts have mandatory exclusive
jurisdiction over appeals from final judgments, orders, and decrees of bankruptcy judges. The
district court may affirm, modify, or reverse the bankruptcy judge’s order, or remand with
instructions for further proceedings. FED. R. BANKR. P. 8013. District Courts, like the Circuit
Courts of Appeals, “review a bankruptcy court’s determinations of law de novo and findings of fact
for clear error.” Wiese v. Community Bank of Cent. Wis., 552 F.3d 584, 588 (7th Cir.2009); FED.
R. BANKR. P. 8013.
In denying interest and fees, the Bankruptcy Court relied upon the absence of an express
provision in the PSA for such awards. It is true that when the PSA was enacted, Congress did not
explicitly provide for attorneys’ fees. But the PSA does provide that livestock proceeds will be
held in trust for the benefit of cash sellers “until full payment has been received by such unpaid
sellers.” 7 U.S.C. § 196. In this case, full payment has not been received by PSA Claimants for
the hogs they sold to the Debtor under revised agreements executed in 2008 (Cash UMAs).
The Bankruptcy Court erred as a matter of law by failing to look to the actual agreements
upon which this dispute is based. The Cash UMAs, under which the disputed sales were made,

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specifically address the issues of attorneys’ fees and pre-judgment interest. Paragraph 14(e) of
the Cash UMAs states that “the prevailing party shall be entitled to reasonable attorneys fees.”
Exhibit A of the agreement states:
In addition to the payments above … MFC shall pay to Member interest on any
amounts due as a result of delivery hereunder the prime rate as published in the
Wall Street Journal on the first day of the quarter in which the delivery is made.
Said interest shall begin on the fourth (4th) day after delivery and continue until full
payment is made.
(See Doc. 18). Since PSA Claimants prevailed in the dispute regarding sales made under the
revised agreements and they have not yet been paid for those sales, PSA Claimants are entitled to
reasonable attorneys’ fees and pre-judgment interest to be paid from the trust account.
The fact that CIT is not a party to those agreements is of no consequence. Any money that
is paid to PSA Claimants will not be paid by CIT; rather, it will come from the lockbox account
held by the Trustee. While the remainder of that account may ultimately be distributed to CIT and
other creditors of the Debtor, any reduction in the account is not relevant to what rightfully belongs
to PSA Claimants.
The Bankruptcy Court also denied post-judgment interest. Procedural Form B 261C of
the Official and Procedural Bankruptcy Forms for the Federal Rules of Bankruptcy Procedure,
which contains a model judgment in an adversary proceeding, contemplates both pre- and
post-judgment interest. Federal Rule of Bankruptcy Procedure 7058 provides that Federal Rule
of Civil Procedure 58 “applies in adversary proceedings.” Judgments entered in civil proceedings
under Federal Rule of Civil Procedure 58 are presumed to include post-judgment interest in
accordance with 28 U.S.C. 1961. See generally Forms 70-71, Appendix of Forms for the Federal
Rules of Civil Procedure. This Court finds no reason to deny post-judgment interest in this
adversary proceeding, and the Bankruptcy Court erred as a matter of law in doing so.

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CONCLUSION
For the foregoing reasons, the Bankruptcy Court’s decision to deny attorneys’ fees and preand post-judgment interest is REVERSED. This matter is REMANDED to the Bankruptcy
Court for a determination of attorneys’ fees and pre- and post-judgment interest consistent with
this Order. The Clerk of Court is DIRECTED to enter judgment accordingly.
IT IS SO ORDERED.
DATED: 06/09/11
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G. PATRICK MURPHY
United States District Judge

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