United States District Court, Northern District of Illinois, E.D
May 27, 1966
IN THE MATTER OF UNITED MILK PRODUCTS CO.
The opinion of the court was delivered by: Marovitz, District Judge.
Petition for Review.
This is a petition for review of a bankruptcy order entered
by Referee Victor E. LaRue on February 28, 1966. The parties
before this Court have stipulated to the following facts:
On May 20, 1965 United Milk Co., the debtor and petitioner
herein, filed a petition in this Court for an arrangement
pursuant to Chapter XI of the Bankruptcy Act. Said petitioner,
a manufacturer of milk products from raw milk supplied by
producers, was granted the authority to continue in possession
of its property and assets until further order of Court. On
the same date, the Marketing Administrator of Order No. 2
issued by the Department of Agriculture and pertaining to the
New York-New Jersey marketing area, mailed a check for
$9,172.19 to the debtor as a part payment of the producer
settlement fund credit that had accrued for milk used by the
debtor in its New York plant during the April, 1965 delivery
period. This check, received after the petition for an
arrangement had been filed, was deposited by the debtor in its
own bank account. Additional producer settlement fund credits
owing to suppliers of the debtor are presently in the
possession of the aforementioned Market Administrator, and a
similar office in charge of enforcing Market Order No. 30
pertaining to the Chicago, Illinois marketing area.
Upon proper application, the Referee concluded that the
aforesaid credits that accrued to the debtor's account did
not become the property of the debtor's estate in bankruptcy
pursuant to Sections 70a(5) and 70(c) of the Bankruptcy Act, as
debtor contended, until the suppliers whose milk sales gave
rise to such credits have been paid in full for the milk they
delivered to the debtor. The Referee thus concluded that the
producer settlement fund credits belong to the unpaid
producers. Accordingly, he ordered the debtor-in-possession to
refund $7,791.86 (the amount of the May 20 check less certain
credits totalling $1,380.33) to the United States, and directed
the Market Administrator to pay this sum plus the amount still
retained by him to the unpaid producers.
It is from that order that the debtor-in-possession has
petitioned this Court for review. Pursuant to authority vested
in this Court under Bankruptcy General Order No. 47 prescribed
by the United States Supreme Court under Section 30 of the
Bankruptcy Act (Sec. 53, Title 11, U.S.C.), we shall adopt the
report of the referee and affirm the contested order of
February 28, 1966.
Under the Marketing Orders, referred to above, "use prices"
are established for milk used by handlers, as the debtor
herein, a higher sum for raw milk that is to be bottled, and
a lower figure for milk used for manufactured products as
butter and cheese. Petitioner dealt primarily in the latter
area. At the end of each month all handlers are required to
report to the Market Administrator the number of pounds of
milk they used in each classification. From these figures the
Administrator computes the "average" or "uniform" price for
the month. The handlers are then required to pay their
producers not less than this uniform price for all milk
received. The bottled milk handler is required to pay into a
"producer settlement fund" the difference between the
"uniform" price he pays his producers and the high "use" price
set by the Administrator. Similarly, the manufacturing
handler, as the debtor, is entitled to draw from that producer
settlement fund an amount equal to the sum he must pay his
producers over and above low use price, so as to meet the
"uniform price." The check sent on May 20, 1965, covered just
such credits which were due debtor's producers.
The question then to be addressed by this Court concerns
whether that money, which became commingled with the debtor's
funds, and those credits remaining in the possession of the
Market Administrators (sought via counterclaim by petitioner),
are the property of debtor's estate which would require the
to file as unsecured general creditors, or whether said sums
indeed belong to the unpaid producers and thus must be turned
over to them prior to any distribution under the Chapter XI
The test which is to be applied under Sections 70(a)(5) and
70(c) of the Bankruptcy Act turns on whether at the time the
petition was filed, under applicable state law, the property
involved could have been "transferred by the debtor or levied
upon and sold under judicial process against" it, or otherwise
could have been "seized, impounded or sequestered." Young v.
Handwork, (7th Cir., 1949) 179 F.2d 70, 16 A.L.R.2d 825.
We are satisfied that the Referee correctly held that the
monies involved were not assets of the debtor's estate, but
that said debtor merely held them as a conduit, having an
obligation to remit same to the producers. Petitioner could
not, by the self-serving act of depositing said funds in its
bank account, defeat the producer's prior right thereto. As
this Court understands the procedure involved, the monies sent
to the debtor as well as those still retained by the Market
Administrator would never reach the debtor, except in those
instances where because of a low "use price" it had not paid
the producers the "uniform" price due. Thus, the debtor has no
independent right to the sums but is merely serving the
function of a delivery agent, transferring money from the
bottling handlers, through the Producer Settlement Fund, to
the raw milk producers who are entitled to a uniform price
whatever ultimate use is made of their product.
Certainly, the producers should not be classified as general
unsecured creditors as debtor proposes where they supplied raw
milk with the assurance that they would receive the "uniform
price" from the Producer Settlement Fund. Similarly, the
remaining unsecured creditors should not be permitted to share
in monies in which the debtor has no direct financial interest
and which it would not have been permitted to retain for its
own use. Petitioner seeks to stop a continuing "motion
picture" at a single "frame" and to have the Referee rule on
the stopped action, while the money is temporarily in debtor's
hands. The referee correctly looked to the end of the reel and
directed that the money be turned over to the producers as
foreseen in the original "script."
Accordingly, it is the judgment of this Court that the
referee below properly held that the net sum of $7,791.86 paid
by the Market Administrator is the property of the unpaid
producers and that the credits of $9,429.70 remaining in the
possession of said Administrator is not a debt due petitioner.
The order of February 28, 1966 is affirmed.
© 1992-2003 VersusLaw Inc.