Appeal from the United States District Court for the Western District of Pennsylvania. D.C. Civil No. 90-1551.
Before: Scirica, Alito, and Seitz, Circuit Judges.
Plaintiffs-appellants Consumers Produce Co., Inc. of Pittsburgh et al. filed this action to recover loan repayments made to defendant Union National Bank of Pittsburgh (UNB) by defendant Volante Wholesale Produce, Inc. (Volante). Plaintiffs alleged that the loan repayments were made in breach of a statutory trust created for their benefit under the Perishable Agricultural Commodities Act (PACA), 7 U.S.C. § 499e et seq. After trial the district court entered judgment for UNB.
The district court had jurisdiction under 28 U.S.C. § 1331 and 7 U.S.C. § 499e(c)(4). We have jurisdiction over this appeal from a final judgment of the district court under 28 U.S.C. § 1291.
A. The Perishable Agricultural Commodities Act
PACA was enacted in 1930 to promote fair trading practices in the marketing of perishable agricultural commodities, largely fruits and vegetables. The statute was amended in 1984 to create a statutory trust for the benefit of unpaid produce suppliers. Under the trust provision, commission merchants, dealers, and brokers who receive perishable agricultural commodities hold them in trust for produce suppliers until the suppliers are fully paid. The trust is a floating, non-segregated, statutory trust which extends not only to commodities, but also to inventories of food or other products derived from the commodities and receivables or proceeds from the sale of the commodities or products. 7 U.S.C. § 499e(c)(2).
An unpaid produce supplier or seller must give written notice of its intent to preserve trust benefits to the produce dealer, broker, or commission merchant within thirty (30) days after payment is due. The notice of intent must also be filed with the Secretary of Agriculture. Id. at § 499e(c)(3).
The statute vests the United States district courts with jurisdiction over actions by trust beneficiaries to enforce payment from the trust and actions by the Secretary of Agriculture to prevent dissipation of the trust. Id. at § 499e(c)(4).
On April 8, 1988, UNB provided a $565,000 term loan to Jeffrey Robinson to purchase the business of Volante through a leveraged buyout. Volante was a produce dealer subject to the provisions of PACA. On the same date, UNB provided a line of credit to Volante, for short-term working capital needs, in the amount of the lesser of $300,000 or 80% of current accounts receivable. Volante's line of credit was later increased by UNB to $450,000 and then to $1,000,000.
The term loan and the line of credit were secured by a first priority lien against Volante assets, including real property, all attachments thereto, all equipment, vehicles, furniture, fixtures and intangibles, and all accounts, contract rights, and inventory. UNB's security interest in Volante thus covered assets subject to the PACA trust.
From Spring 1988 until September 14, 1990, Volante made principal and interest payments to UNB on both the term loan and the line of credit in the ordinary course of business.
Starting in March 1989, Volante began receiving "notices of intent to preserve trust benefits" under PACA from its unpaid produce suppliers. However, all produce suppliers were ultimately paid by Volante through June 1990. Volante began experiencing serious trouble in paying its suppliers during the summer months of 1990.
On September 18, 1990, three unpaid produce suppliers commenced this action against defendant Volante to recover PACA trust assets created through the sale of produce to Volante. UNB was not a named defendant in the initial complaint.
On September 26, 1990, the parties entered into a consent order whereby Volante agreed to pay the plaintiffs $10,000 per week. Volante failed to abide by the order and went out of business in October 1990. The district court then appointed a trustee to collect Volante's accounts receivable on behalf of all PACA trust creditors. The trustee collected approximately $455,000.
Other PACA trust creditors of Volante then intervened in the action and the district court found that $780,343.11 in valid unpaid PACA trust claims existed. Volante's accounts receivable were disbursed to the creditors, leaving a balance of $325,343.11 owing to the plaintiffs.
On August 9, 1991, the district court approved plaintiffs' motion to join UNB as a defendant. In their second amended complaint, plaintiffs alleged that between July 20, 1989 and October 20, 1990 UNB received loan repayments in excess of $325,343.11 from Volante in breach of a PACA trust.*fn1 The plaintiffs claimed that UNB should disgorge sufficient loan payments to cover Volante's $325,343.11 deficiency to the produce suppliers under PACA.
In its pretrial order, the district court limited discovery and trial to (a) whether UNB was a bona fide purchaser for value with respect to the loan payments it received from Volante and (b) whether the bank received such payments "without notice of a breach of trust" by Volante.
After a nonjury trial, the district court held for UNB. Relying on C.H. Robinson Co. v. Trust Co. Bank, N.A., 952 F.2d 1311 (11th Cir. 1992), the district court applied traditional trust principles to find that UNB was a bona fide purchaser for value that received loan payments without notice of Volante's breach of trust. Therefore, it held that UNB need not disgorge the loan repayments to the produce suppliers. This timely appeal followed.
The PACA statute was amended in 1984 to create a trust for the benefit of unpaid produce suppliers. The amendment begins with a legislative finding that:
a burden on commerce in perishable agricultural commodities is caused by financing arrangements under which commission merchants, dealers, or brokers, who have not made payment for perishable agricultural commodities . . . encumber or give lenders a security interest in, such commodities, or on inventories of food or other products derived from such commodities, and any receivables or proceeds from the sale of such commodities or products . . . . This subsection is intended to remedy such burden on commerce in perishable agricultural commodities and to protect the public interest.
To remedy this burden, Congress enacted the following ...