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Agri-Best Holdings, LLC v. the Atlanta Cattle Exchange

August 2, 2011


The opinion of the court was delivered by: Judge Feinerman


Plaintiff Agri-Best Holdings, LLC, brought this diversity action against The Atlanta Cattle Exchange, Inc. ("TACE"), alleging that TACE failed to pay for large quantities of meat products. The complaint asserts state law claims for breach of contract, account stated, and quantum meruit, and seeks over one million dollars in damages, costs, and interest. TACE has moved to dismiss, arguing that Agri-Best is not the real party in interest, that the court lacks personal jurisdiction over TACE, and that venue is improper in this District. Agri-Best opposes TACE's motion and-hedging its bets on the real-party-in-interest issue-moves to join Wells Fargo National Association under Fed. R. Civ. P. 17(a)(3) as an additional party plaintiff. TACE's motion to dismiss is denied. Agri-Best's motion to join Wells Fargo as an additional plaintiff is construed as a motion to substitute Wells Fargo as the sole plaintiff and, as so construed, is granted.

I. Real Party in Interest

On October 5, 2010, Agri-Best voluntarily sought Chapter 11 bankruptcy protection. In re Agri-Best Holdings, LLC, No. 10-44595 (Bankr. N.D. Ill.). Weeks later, on October 29, 2010, Agri-Best filed this lawsuit; attached to the complaint is a log of invoices allegedly showing TACE's indebtedness to Agri-Best. Doc. 1 at 5-11. On November 12, 2010, Wells Fargo moved the bankruptcy court for relief from the automatic stay under 11 U.S.C. § 362(d)(1), arguing that Agri-Best had a credit and security agreement with Wells Fargo, that Agri-Best was indebted to Wells Fargo for $14,562,401.11, that the debt was secured by all of Agri-Best's assets (which include the receivables allegedly owed by TACE), and that with an immaterial exception Wells Fargo was Agri-Best's primary secured creditor. The motion further argued that Agri-Best was winding down and unable to execute an effective reorganization, that Wells Fargo was being harmed by the continuing depreciation of the collateral held by Agri-Best, and that neither Agri-Best nor the bankruptcy estate had any use for the collateral.

On November 17, 2010, the bankruptcy court granted Wells Fargo's motion, allowing it to exercise its rights to the collateral and to apply the proceeds to satisfy its claim against Agri-Best:

The automatic stay is terminated as to Wells Fargo to enable Wells Fargo to (a) exercise its respective rights and remedies with respect to the Collateral in accordance with the Uniform Commercial Code and other applicable law, (b) to sell or otherwise dispose of the Collateral, and (c) apply the proceeds of the Collateral on account of its . claim(s) in accordance with and subject to the restrictions of 11 U.S.C. § 506(b).

Doc. 29-1 at 14. On November 24, 2010, the bankruptcy court converted Agri-Best's bankruptcy from Chapter 11 reorganization proceedings to Chapter 7 liquidation proceedings.

Id. at 17-18. Two months later, Wells Fargo notified TACE of its relief from the automatic stay. Id. at 20. The notice stated, "Pursuant to the terms of its security agreement with [Agri-Best] and the provisions of Section 9-607 of the Uniform Commercial Code, Wells Fargo is entitled to enforce payment of and collect all accounts receivable of [Agri-Best]. The Chapter 7 Trustee appointed in [Agri-Best's] Chapter 7 Proceeding is not collecting the accounts receivable of [Agri-Best]." Ibid. The notice instructed TACE that it should direct all further payments to Wells Fargo, not to Agri-Best, and that absent a court order, payments to any other entity would not satisfy TACE's indebtedness. Ibid.

The question here is whether Agri-Best, Wells Fargo, neither, or both are real parties in interest entitled to pursue this litigation. Agri-Best plainly is not a real party in interest, as the law very clearly holds that a Chapter 7 debtor has no ability to pursue pre-petition legal claims, which by operation of law become property of the bankruptcy estate. See Matthews v. Potter, 316 Fed. Appx. 518, 521 (7th Cir. 2009); Cable v. Ivy Tech State Coll., 200 F.3d 467, 472-74 (7th Cir. 1999). The governing cases say that the Chapter 7 trustee has the exclusive right to pursue claims on behalf of the estate, which would appear to cast doubt on Wells Fargo's ability to step in as a real party in interest. See Matthews, 316 Fed. Appx. at 521 ("only the trustee, as the real party in interest, has standing to sue"); Cable, 200 F.3d at 472 ("In liquidation proceedings, only the trustee has standing to prosecute or defend a claim belonging to the estate."); In re Perkins, 902 F.2d 1254, 1257 (7th Cir. 1990). But that general principle yields where, as here, a creditor is given relief from the automatic stay to exercise its rights to the debtor's pre-petition assets, including the debtor's pre-petition legal claims. See MNC Commercial Corp. v. Joseph T. Ryerson & Son, Inc., 882 F.2d 615, 618-19 (2d Cir. 1989) ("[t]he effect of lifting the automatic stay is . to allow [the Chapter 7 bankrupt's secured creditor] to pursue" pre-petition account debtors of the bankrupt); Pioneer Commercial Funding Corp. v. United Airlines, Inc., 122 B.R. 871, 878 (S.D.N.Y. 1991); In re Metropolitan Hosp., 110 B.R. 731, 740 n.14 (Bankr. E.D. Pa. 1990) (discussing MNC Commercial); Matter of Astro-Netics, 28 B.R. 612, 614 (Bankr. E.D. Mich. 1983) ("On December 16, 1983, this Court lifted the automatic stay and permitted [the Chapter 7 debtor's secured creditor] to collect the [Chapter 7] Debtor's accounts receivable directly from the [Chapter 7 debtor's] account debtors."); see generally In re Incor, Inc., 100 B.R. 790, 791 (Bankr. D. Md. 1989) ("a collection suit brought by a secured creditor against an account debtor of a Chapter 7 debtor to collect prepetition and post-petition receivables, after the modification of the automatic stay allowed the secured creditor to enforce its rights as to its collateral in the receivables," can be heard "in a state court of competent jurisdiction or in a Federal district court based upon diversity of citizenship," but not in the bankruptcy court), aff'd, 113 B.R. 212 (D. Md. 1990).

All this is fairly uncontroversial; indeed, before Agri-Best moved to add Wells Fargo as a party plaintiff (Doc. 31), TACE acknowledged that Wells Fargo could properly pursue this litigation as the real party in interest. Doc. 23 at 2 ("Since Wells Fargo . appears to be the real party in interest, this case cannot proceed. Rather, Wells Fargo must make [a] proper appearance as a party and Wells Fargo must establish its independent right to file this action without regard to whether Agri-Best Holdings LLC could have filed this action."). TACE switched gears once Agri-Best moved to add Wells Fargo, and now argues that state law precludes Wells Fargo from continuing this suit. TACE is right to focus on state law, for "whether a claim may be brought by a creditor of a bankrupt corporation outside of the bankruptcy proceedings depends on an analysis of state law"-at least where, as here, the claim arises from state law. St. Paul Fire & Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688, 700 (2d Cir. 1989); see also MNC Commercial Corp., 882 F.2d at 618.

As noted above, Wells Fargo's notice to TACE asserts that § 9-607 of the Uniform Commercial Code permits it to enforce payment of accounts receivable owed by Agri-Best's account debtors. The provision reads in relevant part:

(a) If so agreed, and in any event after default, a secured party:

(1) may notify an account debtor or other person obligated on collateral to make payment or otherwise render performance to or for the benefit of the secured party;

* * * (3) may enforce the obligations of an account debtor or other person obligated on collateral and exercise the rights of the debtor with respect to the obligation of the account debtor or other person obligated on collateral to ...

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