Opinion
No. 98 CV 7905 (RO).
July 15, 2005
MEMORANDUM ORDER
On December 30, 1997, Finova Capital made several secured loans to Cohen Marketing. These loans, totaling $1,699,168.18, enabled Cohen Marketing to purchase certain co-op units. As security for the loans, Cohen Marketing pledged its equipment, inventory, accounts receivable, and the co-op units themselves.
Store Unit Nos. 423 through 428 and Office Unit Nos. 423A, 424A, 425A, 426A, 427A, and 428A, in the New York City Terminal Market, Hunts Point, Bronx, New York.
The action underlying this dispute was originally commenced on November 4, 1998 by the filing of a complaint by D.M. Rothman Co., Inc., Rothman sought repayment of $14,378 as a putative PACA claimant. Shortly thereafter, Finova Capital filed with this Court a complaint-in-intervention dated December 21, 1998 seeking to establish a first priority security interest in the co-op units.
On October 24, 2003, this Court entered an Order authorizing the sale of the co-op units to Katzman Produce, Inc., and by Supplemental Order dated November 7, 2003, this Court clarified that the sale was deemed free and clear of all liens, claims and encumbrances of any kind, and that all such liens, claims and encumbrances are deemed to attach to the net proceeds of the sale of the co-op units in the same priority in which they encumbered the co-op units immediately prior to the sale. The closing of the sale of the co-op units to Katzman was completed on October 27, 2003, and a separate escrow account for the net sales proceeds, in the amount of $677,275, was established.
Presently before me is intervening plaintiff Finova Capital's motion for partial summary judgment for: (i) declaratory relief that it holds a perfected first priority security interest in net proceeds of the Court-approved sale of the co-op units; and (ii) dismissal of the first counterclaim of plaintiff Rothman to the extent it seeks a judgment declaring Finova's security interest in the co-up units void or secondary to Rothman's claim under the trust provisions of PACA.
Rule 56 of the Federal Rules of Civil Procedure provides that summary judgment is appropriate where "the evidence offered demonstrates that there is no genuine issue of material fact and . . . the moving party is entitled to judgment as a matter of law." Dister v. Continental Group, Inc., 859 F.2d 1108, 114 (2d Cir. 1998); Celotex Corp. v. Catrett, 477 U.S. 317, 323-325 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986).
Under In re Kornblum, 81 F.3d 280 (2d Cir. 1996), a non-PACA creditor can prevail over the PACA trust if any one of the following three conditions is satisfied: (1) no PACA trust existed at the time the units were purchased; (2) even though a PACA trust existed when the units were purchased, they were not purchased with PACA trust assets; or (3) even though a PACA trust existed when the units were purchased, and even though the Units were purchased with PACA trust assets, the trust was terminated.See Id. at 287.
Here, there is an abundance of evidence that Cohen Marketing was not a PACA trustee at the time the units were purchased — October 29, 1993 — thereby satisfying the first Kornblum condition. Such evidence includes the following: (i) no party in this case, including Cohen Marketing, has a single document — such as an invoice, purchase order, or cancelled check — evidencing a sale of produce on credit to Cohen Marketing during the period on or prior to October 29, 1993; (ii) no produce seller claims that it sold any produce to Cohen Marketing on or prior to October 29, 1993 for cash or credit; (iii) Cohen Marketing's accountants produced a CT-3 General Business Tax Return for Cohen Marketing stating that the company was inactive and earned no income during the period from August 17, 1993 to October 29, 1993 (Ex. 7 to Rubin Decl.); (iv) an October 29, 1993 financial statement for Cohen Marketing signed by its accountants states that Cohen Marketing had no liabilities as of that date except for a $450,000 note payable to Point Produce for the co-op units (Ex. 11 to Rubin Decl.); (v) a 1993 Federal Income Tax Return (Form 1120S) which reports income for the periodfollowing the sale of the co-op units (November 1, 1993 through December 31, 1993), is not accompanied by a return reporting income for the preceding period (Ex. 5 to Rubin Decl.); and (vi) Cohen Marketing did not have any employees on or prior to October 29, 1993.
Accordingly, I find that no PACA trust existed on or prior to October 29, 1993 and grant Finova's motion for partial summary judgment.
Submit order on notice.