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In Re: Meadowbrook Farms Cooperative v. the Cit Group/Business Credit

June 9, 2011

IN RE: MEADOWBROOK FARMS COOPERATIVE, DEBTOR.
GREAT LAKES PORK, INC., JOHNSON-PATE PORK, INC., AND LEHMANN BROTHERS FARMS, LLC, APPELLANTS,
v.
THE CIT GROUP/BUSINESS CREDIT, INC., APPELLEE.



The opinion of the court was delivered by: G. Patrick Murphy United States District Judge

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 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.*fn1 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 cross-claim for equitable estoppel against other 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 cross-claim 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.*fn2 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.*fn3 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

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. ยง 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 ...


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