Opinion
NOT FOR PUBLICATION
Argued and Submitted at Pasadena, California: January 21, 2011
Appeal from the United States Bankruptcy Court for the Central District of California. Bk. No. CC-08-22644-TD. Honorable Thomas B. Donovan, Bankruptcy Judge, Presiding.
Bradley Lewis Cornell argued for appellant, G.W. Palmer Co., Inc., et al.
James A. Dumas Jr. argued for appellee, Carolyn A. Dye.
Before: KIRSCHER, PAPPAS, and DUNN, Bankruptcy Judges.
MEMORANDUM
Chapter 7 debtor Tanimura Distributing, Inc. (" TDI"), is a wholesale dealer of produce subject to and licensed under the Perishable Agricultural Commodities Act (" PACA"), 7 U.S.C. § 499a et seq. Appellants consist of a group of TDI's creditors who are also produce dealers subject to PACA (collectively the " PACA Creditors"). The PACA Creditors appeal an order from the bankruptcy court authorizing appellee-chapter 7 trustee, Carolyn A. Dye (" Trustee"), to distribute PACA trust funds. For the following reasons, we AFFIRM.
Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. § § 101-1532, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
Congress enacted PACA in 1930 to promote fair trading practices in the produce industry. See 7 U.S.C. § § 499a et seq.; Idahoan Fresh v. Advantage Produce, Inc., 157 F.3d 197, 199 (3d Cir. 1998). Specifically, " Congress intended PACA to protect small farmers and growers who were vulnerable to the practices of financially irresponsible buyers." Id . (footnote omitted).
The PACA Creditors are made up of three groups which represent several parties: the G.W. Palmer Group; the S& H Packing Group; and the Pacific Tomato Growers Group. The total number of PACA claimants in this case is 71; the total number of PACA Creditors bringing this appeal is 47.
I. FACTS AND PROCEDURAL BACKGROUND
TDI filed a voluntary chapter 7 petition for relief on August 13, 2008. At that time, TDI owed roughly $6 million to certain suppliers holding PACA trust rights.
On January 26, 2009, Trustee filed a Motion for an Order (1) Approving Stipulation Between Trustee and PACA Trust Creditors for Collection of Accounts Receivable, Establishing Trust Claims Procedures and Allowing Surcharge for Administrative Expenses; and (2) Modifying in Part Order Entered January 22, 2009 (the " Stipulation"), following an agreement reached between Trustee and the PACA Creditors regarding the collection of PACA receivables and the evaluation of PACA claims. The Stipulation set forth a more detailed procedure for PACA claims and distributions than what the bankruptcy court had authorized in a January 22, 2009 order on Trustee's original motion.
Prior to the Stipulation, Trustee had filed a Motion for Order Authorizing Collection of Accounts Receivable, Establishing PACA Trust Claims Procedures, and Allowing Surcharge for Administrative Expenses. The bankruptcy court entered an order granting Trustee's motion on January 22, 2009.
According to the Stipulation, any creditor who claimed PACA trust rights against TDI and wished to share in the distribution of any PACA trust assets had to timely file a PACA claim on a particular form and provide certain supporting documents, i.e., a declaration and a balance statement showing all invoices supporting the PACA claim and copies of the listed invoices. Any objections to a PACA claim had to " set forth in detail the legal and factual basis for the objection to each invoice or the payment thereof subject to the objection." PACA claims not timely objected to were deemed valid PACA claims for the amount stated in the proof of claim. Trustee was also to file a " PACA Trust Chart" listing each person/entity that filed a PACA claim, the amount of the claim, the amount of the claim deemed a valid PACA claim and/or the amount of the claim deemed invalid, the funds available for an interim distribution, and the pro rata distribution on the valid PACA claims. The Stipulation was to be " the last word in governing the rights and obligations of the parties, and the procedures to be followed . . . ."
Trustee's proposed Notice to be enclosed with the Stipulation and served on all potential PACA claimants stated: " A PREVIOUSLY FILED PROOF OF CLAIM IS NOT SUFFICIENT. EVERY POTENTIAL PACA CREDITOR MUST FILE A DECLARATION AND SUMMARY CHART AS SET OUT HEREIN, " and further provided, " ANY CLAIMS NOT TIMELY FILED BY 15 APRIL 2009 SHALL BE BARRED."
On March 5, 2009, the bankruptcy court entered an order approving the Stipulation as written (the " March 5 Order"), modifying only the deadline dates as follows:
Notice to all creditors
March 15, 2009
to file claims
PACA claims bar date
May 15, 2009
Deadline to object to
June 15, 2009
PACA claim
Deadline to respond to
July 15, 2009
PACA claim objection
Deadline for Trustee to
August 15, 2009
file PACA Trust Chart
Deadline for objections
September 7, 2009
to PACA Trust Chart
Deadline for motion to
September 14, 2009
determine validity of a
PACA claim
Deadline for Trustee to
October 7, 2009
file motion for
approval of first
interim distribution
The PACA Creditors timely filed their PACA proofs of claims pursuant to the Stipulation. Trustee did not file any objections to any of the PACA Creditors' claims by the June 15, 2009 deadline.
Creditor Agricap, LLC (" Agricap") filed a PACA Claim for $544,251.80. As part of its claim amount, Agricap asserted that it was entitled to payment of offsets from various PACA Creditors due from a financing agreement entered into with TDI which gave Agricap an interest in TDI's account receivables. The PACA Creditors admit that such offsets are owed, but dispute the amount of the offsets and whether they should be paid to Agricap or offset against the amount due to TDI's estate. This dispute between Agricap and the PACA Creditors is pending before the U.S. District Court for the Central District of California, S& H Packing & Sales Co., Inc. v. Tanimura Distrib., Inc., Case No. 08-cv-05250.
Because Trustee did not file the PACA Trust Chart as ordered by August 15, 2009, on September 22, 2009, the PACA Creditors filed a motion to compel Trustee to file it. They asserted that the PACA Trust Chart was necessary in order to define the class of PACA creditors, to determine the validity and amount of all such claims, and to provide the basis for any pro rata distribution of PACA trust assets recovered.
Trustee filed a response on October 27, 2009, asserting several reasons for why she had not yet prepared the PACA Trust Chart. First, Trustee contended that no distribution could be made unless and until the claims between Agricap and the PACA Creditors were resolved in a pending district court matter (see footnote 6), so any chart she would provide would be informational only. Second, many of the PACA claims submitted did not take into account the setoffs that TDI's estate and Agricap could assert against them if the claimant bought produce from TDI and had unpaid invoices. Third, some creditors filed proofs of claim that looked like PACA claims prior to the general claims bar date, but they did not file a subsequent PACA claim pursuant to the March 5 Order, and some of those that did re-file claimed a different amount than they claimed previously. Finally, many PACA claimants filed claims for amounts that differed significantly from TDI's scheduled amounts owed, and those overstated claims required further analysis. To prove these asserted facts, Trustee submitted " Exhibit A" - a chart identifying the claimant, the amount claimed by the claimant, the amount the claimant owed TDI to be offset, and the difference between the two amounts.
The PACA Creditors replied, contending that Trustee's response served as an untimely and unsupported objection to the PACA Creditors' claims; her objections were months late and lacked evidentiary support. They further argued that the claims of those parties who chose not to file a PACA proof of claim should be barred per the March 5 Order. Although the bankruptcy court heard the motion to compel on December 16, 2009, we have no transcript from that hearing, and no order was ever entered on the motion to compel.
On January 20, 2010, Trustee filed a Motion for Order Authorizing Distribution of PACA Trust Funds (the " Distribution Motion"). Trustee wished to distribute approximately $119,000 collected from TDI's accounts receivable to the PACA claimants on a pro rata basis, which equated to a payment of approximately two cents on the dollar. Trustee proposed to distribute funds based on the principal amount of the PACA claimant's filed claim, minus any amount owed to TDI, including amounts owed on TDI's invoices that were assigned to Agricap.
In short, Trustee's proposed distribution worked as follows. If a PACA claimant's pro rata distribution was $500 based on its gross claim of $10,000, and the claimant owed TDI $2,000, the claimant would receive $0 because the $2,000 debt cancelled out the $500 distribution. Trustee contended that her distribution method was the most equitable since some creditors had already paid the estate while other creditors paid nothing, and any other method would result in the paying creditors subsidizing the distribution to those creditors who did not pay.
Due to the modest amount of funds available, Trustee was willing to disregard the discrepancies between the filed claim amounts and the amounts reflected as owed in TDI's records, and accept as true the amount claimed by the PACA claimants, even though several claimants failed to provide any evidentiary support for their claims. Trustee further proposed to distribute funds to any PACA claimant, whether or not they filed an actual " PACA" proof of claim as required by the March 5 Order. Finally, to make the distribution more equitable, Trustee proposed removing any component of attorneys fees or interest requested in some of the claims.
The PACA Creditors filed objections. Although they agreed to a setoff, they contended that it should work as follows. If a PACA claimant's pro rata distribution is $500 based on its gross claim for $10,000, and it owes TDI $2,000, the $2,000 should be setoff from the $10,000, leaving the claimant with a " net" claim of $8,000, which provides the basis for its pro rata distribution of $400. In other words, the setoff amount should be deducted from the gross amount of the claim, not the pro rata distribution. The PACA Creditors also contended that the claims of 12 creditors who failed to file a proper PACA proof of claim pursuant to the March 5 Order should be barred. Further, they asserted, three of these 12 claimants were not valid PACA trust creditors because they failed to either: (1) include statutorily prescribed language on their billing statements as required under 7 U.S.C. § 499e(c)(4); or (2) provide evidence of separate timely written notice of intent to preserve their PACA trust rights as required under 7 U.S.C. § 499e(c)(3). Finally, the PACA Creditors contended that TDI was obligated to pay interest and attorneys fees on each PACA claim.
The GW Palmer Group and the Pacific Tomato Group each filed an objection to the Distribution Motion. S& H Packing Group did not file an objection, but did appear at the hearing and opposed Trustee's proposals.
A hearing was held on the Distribution Motion on February 10, 2010. During oral argument, the bankruptcy court expressed its dismay about the extent of the legal expense and delay occasioned by arguing about what was really pennies to any particular creditor. The court further noted that Trustee was not finished with her efforts to collect further money, and that no matter how it ruled on the $119,000 distribution, a de minimis amount in light of the $6 million in PACA claims, its ruling was not a final disposition to any issue other than who would get to share in the $119,000, but even that decision was subject to reconsideration. Regarding the issue of attorneys fees and interest, Trustee agreed that if the PACA claimant's invoice to TDI provided for interest and attorneys fees, the claimant would receive them, even though it was pennies.
After hearing the parties' arguments, the bankruptcy court announced orally its ruling in favor of Trustee, adopting her proposed method of distribution:
COURT: It seems to me that where we are with respect to an order is that A, it's without prejudice to . . . further collections, B it's without prejudice with respect to what's going on in the district court and C, it's subject to reconsideration at any time down the road if causes [sic] establish [sic] for reconsideration.
TRUSTEE'S COUNSEL: Yes sir.
COURT: Well, if that's the case, then it would be my inclination to accept the trustee's point of view with respect to off sets [sic], that we're talking about a nominal amount of money in virtually every case, a tiny fraction of the individual PACA claim or aggregate PACA claim . . . .
Here we have extremely limited assets and we have what is necessarily an interim order to take care of a small pot of money and to get it in the hands of people who deserve to share in the recoveries. I think on that basis the trustee's proposal is acceptable and I would sign an order to that effect.
Hr'g Tr. 29:4-25, Feb. 10, 2010.
On May 27, 2010, the bankruptcy court entered an order on the Distribution Motion in accordance with its February 10 oral ruling (the " May 27 Order"). Only those objecting creditors who attached invoices to their PACA claims that provided for their contractual entitlement to interest and/or attorneys fees would receive them. The court declined to award any discretionary interest to those creditors whose invoices, if any, did not provide for interest and/or attorneys fees. The PACA Creditors timely appealed.
II. JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. § § 1334 and 157(b)(2)(A). On June 25, 2010, we received a copy of the PACA Creditors' motion for leave to appeal. On September 2, 2010, the motions Panel issued an order determining that the order on appeal was final and immediately appealable without the need for leave of the Panel. However, the Panel granted leave to the extent that leave to appeal was necessary. Therefore, we have jurisdiction under 28 U.S.C. § 158.
The parties informed the Panel at oral argument that at least $25,000 of the PACA trust funds remain to be distributed. As a result, this appeal is not moot. See United States v. Tanoue, 94 F.3d 1342, 1344 (9th Cir. 1996)(appeal is moot when events occur that make it impossible for the appellate court to grant " any effective relief whatever.").
III. ISSUES
1. Did the bankruptcy court abuse its discretion when it adopted Trustee's method of distribution?
2. Did the bankruptcy court err in permitting certain claimants to receive a pro rata disbursement from the PACA trust funds?
3. Did the bankruptcy court abuse its discretion by not granting discretionary prejudgment interest to certain PACA Creditors?
IV. STANDARD OF REVIEW
The bankruptcy court's decisions with respect to matters of setoff are reviewed for an abuse of discretion. Arkison v. Frontier Asset Mgmt., LLC (In re Skagit Pac. Corp.), 316 B.R. 330, 335 (9th Cir. BAP 2004). The bankruptcy court's decision to deny discretionary prejudgment interest is also reviewed for an abuse of discretion. Endico Potatoes, Inc. v. CIT Group/Factoring, Inc., 67 F.3d 1063, 1071-72 (2d Cir. 1995). This involves a two-step inquiry. United States v. Redlightning, 624 F.3d 1090, 1110 (9th Cir. 2010)(citing United States v. Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009)). First, we determine de novo whether the bankruptcy court identified the correct legal rule to apply to the relief requested. Id . If the court did not identify the correct legal rule, it is an abuse of discretion. Second, we determine if the bankruptcy court's application of the correct legal standard was illogical, implausible, or without support in inferences that may be drawn from the facts in the record. Id . (internal citations omitted). If the court's application of the correct legal standard to the facts was illogical, implausible, or without support in inferences that may be drawn from the facts in the record, then the bankruptcy court abused its discretion. Id.
Whether certain PACA Creditors are entitled to share in the PACA trust assets is a question of law reviewed de novo. C& E Enters., Inc. v. Milton Poulos, Inc. (In re Milton Poulos, Inc.), 107 B.R. 715, 717 (9th Cir. BAP 1989), aff'd in part, rev'd in part, 947 F.2d 1351 (9th Cir. 1991). De novo review requires that we consider a matter anew, as if it had not been heard before, and as if no decision had been previously rendered. United States v. Silverman, 861 F.2d 571, 576 (9th Cir. 1988).
V. DISCUSSION
A. The Bankruptcy Court Did Not Abuse Its Discretion When It Adopted Trustee's Method Of Distribution.
1. Setoff in Bankruptcy.
The rule of setoff allows parties that owe mutual debts to state the accounts between them, subtract one from the other and pay only the balance. Cohen v. Sav. Bldg. & Loan Co. (In re Bevill, Bresler & Schulman Asset Mgmt. Corp.), 896 F.2d 54, 57 (3d Cir. 1990). The purpose of setoff is to avoid " the absurdity of making A pay B when B owes A." Studley v. Boylston Nat'l Bank, 229 U.S. 523, 528, 33 S.Ct. 806, 57 L.Ed. 1313 (1913).
The Bankruptcy Code does not grant a right to setoff; state law governs these rights. Citizens Bank of Md. v. Strumpf, 516 U.S. 16, 18-19, 116 S.Ct. 286, 133 L.Ed.2d 258 (1995). Section 553 acknowledges the common law and state law rights of setoff and merely preserves such rights. Id . The parties do not dispute that California law recognizes the equitable right to setoff. Fed. Nat'l Mortg. Ass'n v. County of Orange (In re County of Orange), 183 B.R. 609, 622 (Bankr. C.D. Cal. 1995).
Section 553(a) provides in relevant part:
" In determining whether the right to setoff should be preserved in bankruptcy under § 553, the party asserting setoff must demonstrate the following: (1) the debtor owes the creditor a prepetition debt; (2) the creditor owes the debtor a prepetition debt; and (3) the debts are mutual." Biggs v. Stovin (In re Luz Int'l, Ltd.), 219 B.R. 837, 843-44 (9th Cir. BAP 1998). The parties agree that setoff is applicable in this case.
2. Analysis.
Where the parties disagree is at what point the setoff should be applied in the distribution calculation. The PACA Creditors contend that the bankruptcy court erred in implementing Trustee's inequitable method of subtracting the distribution amount from the debt owed to TDI because the claims of TDI (or Agricap) will be fully satisfied, while the PACA Creditors' claims will be only partially satisfied, if they receive any distributions at all. The PACA Creditors assert that the equitable approach is to reduce the principal claims by the amounts the PACA Creditors owe to TDI.
Section 553 does not prescribe the means by which a setoff may or must be executed in order to be effective. PACA also sheds no light on this subject. While offsetting the total amount party A owes party B against the total amount that party B owes party A may be the predominant method to calculate a setoff, it is not the exclusive method. In re Fruehauf Trailer Corp., 414 B.R. 36, 42 (Bankr. D. Del. 2009) (" Based on the equitable nature of setoff, a court may calculate the setoff in the way it deems most equitable.").
While we recognize the special protections Congress afforded to PACA creditors with respect to payment, and that Trustee did not timely object to any of the PACA claims, we cannot conclude on this record that the bankruptcy court abused its discretion when it adopted Trustee's proposed method of setoff for this initial distribution. In the absence of any controlling authority, the court was free to apply Trustee's method, which it determined, in its discretion, was the most equitable. We will not alter the trial court's discretionary decision.
We further note that the bankruptcy court clearly stated that its ruling here was not an across-the-board determination of how future distributions would be made, and that it would have no effect on any matters pending in the district court. Accordingly, we AFFIRM this portion of the May 27 Order.
B. The Bankruptcy Court Did Not Err When It Allowed Certain PACA Claimants To Share In The Distribution Of The PACA Trust Funds.
In the March 5 Order, the bankruptcy court approved the Stipulation as drafted, modifying only certain deadline dates. Despite the March 5 Order, Trustee's Distribution Motion proposed that all PACA claimants, whether or not they filed a PACA proof of claim and supporting evidence, be allowed to receive a pro rata distribution. The PACA Creditors opposed. They asserted that allowing 12 procedurally defective claims circumvented the Stipulation's purpose of determining valid PACA trust beneficiaries. Trustee contended that the 12 claims should be allowed because perhaps PACA claimants were confused as to what was effectively a requirement that they file two claims. Over the PACA Creditors' objection, the bankruptcy court approved Trustee's proposal to allow them.
Although not titled as such, Trustee's request to allow the 12 procedurally defective claims essentially functioned as a motion for relief from the March 5 Order under Fed.R.Civ.P. 60(b), incorporated by Rule 9024. The PACA Creditors contend that the bankruptcy court erred when it allowed these 12 claimants to share in the distribution of PACA trust funds in light of the March 5 Order. This argument is better suited for the bankruptcy court.
In the May 27 Order, the bankruptcy court modified the procedural rules for PACA claims set forth in the March 5 Order. As courts of equity, bankruptcy courts have broad discretion under Rule 9024 to reconsider, vacate, or modify past orders. Meyer v. Lenox (In re Lenox), 902 F.2d 737, 739-40 (9th Cir. 1990). And although Rule 9024 refers to relief from final orders, it does not restrict the bankruptcy court's power to reconsider any of its previous orders when equity so requires. Id . at 740. What the PACA Creditors should be arguing on appeal is how the bankruptcy court abused it discretion when it entered the May 27 Order granting Trustee's request for relief from the March 5 Order. They have not provided any such argument. Issues not raised on appeal are waived. McCrary v. Barrack (In re Barrack), 217 B.R. 598, 602 n.2 (9th Cir. BAP 1998). We may, however, review an issue not properly presented if our failure to do so would result in manifest injustice. Leer v. Murphy, 844 F.2d 628, 634 (9th Cir. 1988). Because the effect of including these 12 claimants in a distribution that equates to less than two cents on the dollar is de minimis, no manifest injustice exists, and therefore we decline to review this matter.
The PACA Creditors further argue that three of these 12 PACA claimants failed to establish their rights as PACA trust beneficiaries, and the bankruptcy court erred when it included them in the distribution. Whether these three PACA claimants are entitled to share in the PACA trust assets is a question of law we review de novo. Milton Poulos, 107 B.R. at 717.
The alleged three claimants are Martinez Farms (Claim No. 30), Plug Connection (Claim No. 1), and Tom Fruden Tomato (Claim No. 3).
Under PACA, the trust automatically arises in favor of a produce seller upon delivery of produce and is for the benefit of all unpaid suppliers or sellers until the buyer has paid the sums owing in connection with the subject transactions in full. Milton Poulos, 947 F.2d at 1352 (citing 7 U.S.C. § 499e(c)(2)). Nonetheless, unpaid produce sellers must take certain steps to preserve their rights to benefit from the trust. Id . at 1352-53. Licensed PACA produce sellers can accomplish this by including language required by the PACA statute on the face of their invoices to notify the buyer that the produce is sold subject to the trust. See 7 U.S.C. § 499e(c)(4). Alternatively, produce sellers can preserve their trust rights by sending a document entitled " Notice of Intent to Preserve Trust Benefits" to the buyer within 30 days after expiration of the parties' payment terms. See 7 U.S.C. § 499e(c)(3). Literal compliance is required. San Joaquin, 958 F.2d at 940.
The language required under 7 U.S.C. § 499e(c)(4) is:
Title 7 U.S.C. § 499e(c)(3) provides:
The PACA Creditors contend that the three PACA claimants did not preserve their PACA trust rights because their proofs of claim failed to either (1) include the statutorily prescribed language on their ordinary and usual billing statements or invoices, or (2) provide evidence of a separate timely written notice of intent. While these alleged deficiencies may be true, the PACA Creditors failed to provide any evidence in the record to support their contentions. Although they recited the claim numbers related to the three PACA claimants' proofs of claim, the PACA Creditors did not include copies of these claims (or any documents filed therewith) in the record. We also have no transcripts from any of the several PACA-related hearings (other than the one from Trustee's Distribution Motion), so we have no knowledge of whether any of the three PACA claimants appeared and/or submitted any evidence to the bankruptcy court proving their standing as valid PACA creditors.
An appellant who attacks the trial court's findings or conclusions on appeal must include in the record all the evidence on which the court may have made its findings or conclusions. See Fed. R. App. P. 10(b); Bourke v. City of San Diego, 1997 WL 75571, at *1 (9th Cir. Feb. 18, 1997) (citing Thomas v. Computax Corp., 631 F.2d 139, 141 (9th Cir. 1980)). We, as a court of appeal, are under no obligation to scour the bankruptcy court docket or claims register to unearth what the PACA Creditors should have provided in the record. Kritt v. Kritt (In re Kritt), 190 B.R. 382, 386-87 (9th Cir. BAP 1995); Carter v. Am. Oil Co., 139 F.3d 1158, 1163 (7th Cir. 1998). Failing to present a sufficient record can itself serve as a basis for summary affirmance or for dismissal of the appeal. Cmty. Commerce Bank v. O'Brien (In Re O'Brien), 312 F.3d 1135, 1137 (9th Cir. 2002).
Without any evidence in the record, we are unable to conduct a meaningful review of this issue. Accordingly, we must AFFIRM this portion of the May 27 Order.
C. The Bankruptcy Court Did Not Abuse Its Discretion When It Declined To Award Certain PACA Creditors Discretionary Prejudgment Interest.
In its May 27 Order, the bankruptcy court authorized the payment of prejudgment interest (and attorneys fees) to those PACA claimants who attached invoices to their claims that provided a contractual entitlement to interest and/or attorneys fees. It declined to award discretionary interest to those 18 claimants who did not provide such invoices. The PACA Creditors contend that the bankruptcy court erred in denying discretionary interest to these 18 PACA Creditors who were not otherwise entitled to such interest under a contractual right. We disagree.
The PACA statute is silent on the issue of attorneys fees and prejudgment interest. 7 U.S.C. § 499a et seq. In Middle Mountain Land & Produce, Inc. v. Sound Commodities, Inc., the Ninth Circuit interpreted PACA's statutory language " in connection with" to include attorneys fees and interest as part of a claimant's PACA claim against the assets of the trust if the PACA claimant had a contractual right to such fees and interest. 307 F.3d 1220, 1222-23 (9th Cir. 2002). As for prejudgment interest absent a contractual right, Middle Mountain held that the trial court has broad discretion to fashion prejudgment interest awards to PACA claimants, and it can award reasonable prejudgment interest if it is necessary to protect the interests of the PACA claimants. Id . at 1226 (citing Endico Potatoes, 67 F.3d at 1071-72).
See 7 U.S.C. § 499e(c)(2), supra n.3
As for attorneys fees, Middle Mountain held that such awards in PACA claims are proper in two situations: (1) when an enforceable contract exists giving the plaintiff a right to attorney's fees; and (2) when a PACA claimant's litigation efforts result in a common fund for the benefit of a group of claimants. Id . at 1224-25. Attorneys fees are not at issue in this appeal.
The decision whether to grant prejudgment interest and the rate used if such interest is granted " are matters confided to the district court's broad discretion, and will not be overturned on appeal absent an abuse of that discretion." Endico Potatoes, 67 F.3d at 1071; Blau v. Lehman, 368 U.S. 403, 414, 82 S.Ct. 451, 7 L.Ed.2d 403 (1962)(on appeal denial of prejudgment interest will only be reversed if it " was either so unfair or so inequitable as to require us to upset it.").
Despite PACA's strong policy to increase legal protection for unpaid sellers of agricultural commodities and encourage prompt payment by buyers, Middle Mountain did not hold that merely being a PACA claimant entitles one to prejudgment interest. If that were the case, the court would not have held that trial judges have broad discretion to award prejudgment interest under PACA, and all PACA claimants would automatically receive it. Therefore, Middle Mountain suggests that the PACA claimant must show something more.
The 18 PACA Creditors subject to the bankruptcy court's denial of prejudgment interest provided no facts before the bankruptcy court to show why such an award was warranted as a matter of discretion. For example, did these 18 PACA Creditors attempt to collect their outstanding invoices prior to TDI filing bankruptcy? If so, how did TDI respond? How long ago did their transaction(s) with TDI occur? The 18 PACA Creditors also failed to offer the interest rate or the relevant dates that might be used in calculating the amount of interest. In fact, only four of them provided in their oppositions to the Distribution Motion how much interest should be awarded.
Two objections to the Distribution Motion were filed by the PACA Creditors, one by the G.W. Palmer Group and one by the Pacific Tomato Group. Only the Pacific Tomato Group's objection set forth any alleged interest amounts owing in its prayer for relief. Out of the 13 creditors in that list, only four of them (Pacific Tomato Growers, MJ International Marketing, Natural Selection Foods, and Interfresh, Inc.) are part of the 18 PACA Creditors denied interest. The remaining 14 parties failed to assert what amount of interest was allegedly owed.
If these 18 PACA Creditors could not explain in their oppositions why they should be awarded prejudgment interest or, for most of them, even state how much they wanted, then the bankruptcy court could not have abused its discretion in denying it. In addition, as the bankruptcy court observed, since the cost of recalculating interest clearly outweighed what little the 18 PACA Creditors stood to recover in interest with this first distribution, awarding them discretionary prejudgment interest was not necessary to protect their interests pursuant to PACA. We see no abuse here and AFFIRM this portion of the May 27 Order.
The 18 PACA Creditors also argue that they are entitled to discretionary prejudgment interest under California law, citing Cal. Civ. Code § 3287(a). Their argument is misplaced. Since their claim arises under a federal statute, the award of interest is governed by federal law, not the law of the forum state. Poleto v. Consol. Rail Corp., 826 F.2d 1270, 1274 (3d Cir. 1987), overruled on other grounds, Kaiser Aluminum & Chem. Corp. v. Bonjorno, 494 U.S. 827, 110 S.Ct. 1570, 108 L.Ed.2d 842 (1990); Sunclipse, Inc. v. Butcher (In re Butcher), 200 B.R. 675, 680 (Bankr. C.D. Cal. 1996)(same).
VI. CONCLUSION
For the foregoing reasons, we AFFIRM.
Congress amended PACA in 1984 to provide the additional remedy of a statutory trust for " suppliers, sellers, or agents" against buyers who fail to make prompt payment. Under this provision, a buyer's produce, products derived from that produce, and the proceeds gained therefrom are held in a non-segregated, floating trust for the benefit of unpaid suppliers, sellers, and agents who meet the applicable statutory requirements to be granted the status of PACA trust fund beneficiaries. Id . See 7 U.S.C. § 499e(c)(2). The PACA trust commences by operation of law upon the seller's delivery of the produce and continues until the produce buyer makes full payment for the produce. 7 U.S.C. § 499e(c)(2).
PACA trust proceeds are not property of the bankruptcy estate. See Bowlin & Son, Inc. v. San Joaquin Food Serv., Inc. (In re San Joaquin Food Serv., Inc.), 958 F.2d 938, 939 (9th Cir. 1992).
Except as otherwise provided . . . this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that arose before the commencement of the case . . . .
The perishable agricultural commodities listed on this invoice are sold subject to the statutory trust authorized by section 5(c) of the Perishable Agricultural Commodities Act, 1930 (7 U.S.C. 499e(c)). The seller of these commodities retains a trust claim over these commodities, all inventories of food or other products derived from these commodities, and any receivables or proceeds from the sale of these commodities until full payment is received.
The unpaid supplier, seller, or agent shall lose the benefits of such trust unless such person has given written notice of intent to preserve the benefits of the trust to the commission merchant, dealer, or broker and has filed such notice with the Secretary [of Agriculture] within thirty calendar days (i) after expiration of the time prescribed by which payment must be made, as set forth in regulations issued by the Secretary, [or] (ii) after expiration of such other time by which payment must be made, as the parties have expressly agreed to in writing before entering into the transaction . . . . When the parties expressly agree to a payment time period different from that established by the Secretary, a copy of any such agreement shall be filed in the records of each party to the transaction and the terms of payment shall be disclosed on invoices, accountings, and other documents relating to the transaction.