OPINION
OVERVIEW
The bankruptcy court awarded summary judgment in favor of Appellees, determining that they were entitled to the debtor’s accounts receivable that had been collected by Appellant bank and awarding prejudgment interest to Appellees, but not attorney’s fees. Appellant bank alleges that the
FACTUAL BACKGROUND
Debtor Southland + Keystone’s (“Debtor”) primary business and main source of income was the purchase and resale of agricultural commodities. Both purchase and resale of the commodities occurred within and without California although the bulk of the transactions occurred entirely within California. The Debtor was licensed as а commission merchant, dealer or broker by the United States Department of Agriculture (“USDA”) under the Perishable Agricultural Commodities Act, 7 U.S.C. §§ 499a-499s (“PACA”). Under PACA, commodities and the proceeds thereof sold to licensed dealers or brokers are impressed with a trust in favor of the sellers of the commodities. The claimants to the trust assets have a claim superior to lenders with a blanket security interest in a debtor’s inventory, accounts receivable, and other property.
In December of 1986, Appellant Bank of Los Angeles (“Bank” or “Appellant”) extended a $500,000.00 line of credit to the Debtor. Thе line of credit was secured by essentially all of the Debtor’s assets, including its accounts receivable. The Bank asserts that it was assured by the USDA that inventory and receivables from transactions that occur entirely within a single state are not subject to the claims of PACA creditors. The Bank further asserts that before it extended credit to the Debtor, the Bank assured itself that approximately 90% of the Debtor’s business was entirely intrastate. The Bank claims that it would not have made the loan absent the assurances provided by the USDA.
The Debtor promptly drew down the entire line of credit. When the Debtor defaulted on its obligations to the Bank on or about March 31,1987, the Bank began seizing and liquidating its collateral. Between May and September of 1987, the Bank collected $403,527.30 of the Debtor’s accounts receivable. The Bank was paid in full (and may hold a surplus) from its collection of the receivables and other collateral.
Meanwhile, on June 12, 1987 the Debtor filed its petition under Chapter 11 of the Bankruptcy Code. A committee representing PACA claimants (“Committee”) (the Committee is the Appellee/Cross Appellant in the instant appeal) was not formed until September 1, 1989. On October 16, 1989 the Committee filed a complaint against the Debtor and the Bank, seeking (1) a declaration that all monies collected by the Debtor and the Bank from the Debtor’s receivables were PACA trust funds, and (2) an order directing the Debtor and the Bank to disgorge those funds and pay them over to the Committee.
The Bank filed a motion to dismiss the complaint or, in the alternative, to abstain from exercising jurisdiction over the proceeding (“Motion to Dismiss”). The Bank asserted that the court lacked jurisdiction to resolve the dispute because (1) only Article III courts can adjudicate PACA issues, and (2) the prоceeding was neither a core nor a related proceeding. The Bank’s answer and counterclaims indicate a belief that the court had jurisdiction over the proceeding. The Bank’s Motion to Dismiss was subsequently denied.
On June 20, 1990, the Committee filed a Motion for Summary Judgment. The Committee argued that there were no genuine issues of material fact and that, as a matter of law, PACA imposed a trust upon the Debtor’s accounts receivable collected by the Bank which took priority over the Bank’s security interest. The Bank opposed the Motion for Summary Judgment. The court held for the Committee but denied the Committee’s request for attorney’s fees. A judgment supported by findings of
ISSUES/STANDARDS OF REVIEW
1. Whether the bankruptcy court had jurisdiction to determine the issues raised in the adversary proceeding commenced by the PACA Committee. Jurisdictional issues are reviewed de novo.
In re Castlerock Properties,
2. Whether the bankruptcy court properly awarded summary judgment in favor of the Committee, allowing the recovery of the Debtor’s accounts receivable. The Panel reviews summary judgments de novo.
In re Hyman,
3. Whether the bankruptcy court properly awarded to the Committee and calculated prejudgment interest. We review the bankruptcy court’s decision to award prejudgment interest for an abuse of discretion.
See United States v. Imperial Food Imports,
4. Whether the bankruptcy court properly denied Appellant an offset fоr the collection costs it incurred collecting the Debtor’s receivables. We review the bankruptcy court’s decision regarding the allowance of an offset for an abuse of discretion.
See Melamed v. Lake County National Bank,
5. Whether the bankruptcy court properly denied the Committee’s request for attorney’s fees. “ ‘A bankruptcy court’s award of attorneys’ fees will not be disturbed on appeal absent an abuse of discretion or an erroneous application of the law.’ ”
In re Riverside-Linden Inv. Co.,
DISCUSSION
1. Jurisdiction
Appellants argue that the bankruptcy court did not have jurisdiction over the adversary proceeding commenсed by the Committee because (1) it was neither a core nor a related proceeding over which the court could exercise jurisdiction under Bankruptcy Code section 157(b), and (2) PACA actions can only be brought in the district court. We conclude that the court had jurisdiction over this matter.
a. The Proceeding Is a Core Proceeding
What constitutes a “core” proceeding is addressed in 28 U.S.C. § 157(b)(2). Under this provision, core proceedings include, but are not limited to:
(A) matters concerning the administration of the estate;
(B) allowance or disallowance of claims against the estate ...
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(K) determination of the validity, extent or priority of liens ...
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(O) other proceedings affecting the liquidаtion of the assets of the estate or the adjustment of the debtor-creditor ... relationship. ...
Appellant argues that this is not a core proceeding because the only dispute is whether Appellant or the PACA claimants are entitled to the Debtor’s accounts receivable. Appellant asserts that the Debtor will not recover any of the money in either case. Thus, according to Appellant, this is not a dispute over property of the estate or anything that can affect the estate.
Appellant points to two factors supporting this argument: First, it cites cаses stating that PACA proceeds are not property of the estate.
See, e.g., In re Milton Poulos, Inc.,
Appellant’s position is untenable for two reasons. First, that PACA proceeds are not property of the estate does not mean the bankruptcy court does not have jurisdiction to make that determination. Under Appellant’s reasoning, any bankruptcy court order determining that assets are not property of a bankruptcy estate would be of no effect bеcause the court would not have had jurisdiction to enter the order. Clearly, a determination of whether assets are property of a bankruptcy estate concerns administration of the estate. See 28 U.S.C. § 157(b)(2)(A).
Second, Appellant’s claim that it collected the receivables prepetition is both inaccurate and irrelevant. The record indicates that the receivables were collected between May and September of 1989. The Debtor filed its petition on June 12,1989. Thus, at least some, and perhaps most, of the receivables were collected post-petition. Interestingly, Appellant never sought relief from the stay to do this for reasons not stated in the record.
Moreover, in the cases cited by Appellant, the bankruptcy courts exercised jurisdiction over the determination of whether the proceeds and receivables at issue were PACA proceeds and therefore assets of the estate.
See Poulos,
Appellant argues that these cases are distinguishable from the instant case because there the debtors possessed the receivables and produce at issue, whereas here Appellant had executed upon the receivables when the bankruptcy was filed. As noted above, however, Appellant continued to collect receivables long after the Debtor filed its petition.
Even had Appellant collected all of the receivables at issue before the Debt- оr filed its petition, the receivables would be property
of
the estate. In
United States v. Whiting Pools, Inc.,
b. PACA Actions May Be Brought in Bankruptcy Court
Appellant next argues that only the district court, and not the bankruptcy court, cаn preside over litigation concerning PACA. This argument also is without merit.
First, it is well settled that federal and state courts have concurrent jurisdiction to try cases involving federal claims unless Congress expressly makes federal jurisdiction exclusive.
See Gulf Offshore Co. v. Mobil Oil Corp.,
Second, even if jurisdiction over PACA matters is exclusive in federal district courts, there is no reason that such matters wоuld not be referred to the bankruptcy court by a general order of reference if they are otherwise within the latter court’s jurisdiction over bankruptcy, cases
Finally, Appellant argues that the bankruptcy court should have abstained from hearing the adversary proceeding. Appellant, however, provides no substantive reasons or case authority demonstrating that the bankruptcy court should have abstained from hearing the adversary proceeding. Appellant merely states that the bankruptcy court should have allowed the district court “to decide the complex issues of interstate commerce resulting from this case_” There is no basis for determining that the trial court erred in refusing to abstain.
2. Summary Judgment
a. The PACA Trust Fund
The PACA trust is a statutory trust fund established by Congress that operates in favor of all unpaid suppliers or sellers of perishable agricultural commodities. It “was established by Congress to proteсt sellers and suppliers of perishable agricultural commodities until full payment of sums due have been received.”
Poulos,
It is hereby found 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 purchased, contracted to be purchased, or otherwise handled by them on behalf of another person, encumber or give lenders a security interest in, such сommodities, 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, and that such arrangements are contrary to the public interest. This subsection is intended to remedy such burden on commerce in perishable agricultural commodities and to protect the public interest.
7 U.S.C.S. § 499e(c)(1) (Law.Co-op.Supp. 1991). To implement this policy, Congress created the PACA trust:
Perishable agricultural commodities received by a commission merchant, dealer, or broker in all trаnsactions, and all inventories of food or other products derived from perishable agricultural commodities, and any receivables or proceeds from the sale of such commodities or products, shall be held by such commission merchant, dealer, or broker in trust for the benefit of all unpaid suppliers or sellers of such commodities or agents involved in the transaction, until full payment of the sums owing in connection with such transactions has been received by such unpaid suppliers, sellers, or agents....
7 U.S.C.S. § 499e(c)(2) (Law.Co-op.Supp. 1991) (emphasis added). Any supplier or seller of аgricultural commodities who gives proper notice of its interest in the PACA trust has a claim against the trust res.
See Poulos II,
b. Interstate versus Intrastate Transactions
The trial court in the case at bar concluded (1) the Debtor’s “transactions in perishable agricultural commodities were intended to be and were within interstate сommerce (2) the financing arrangement between Appellant and the. Debtor is the type of transaction “against which unpaid suppliers of produce are intended to be protected” by PACA; and (3) “[t]he funds collected by [Appellant] on account of the accounts receivable of [the Debtor] are PACA trust funds pursuant to the PACA Trust Provisions.” Apt.E.R. 24 at 10-11.
Section 499e(c)(2) provides that commodities, products derived from commodities and receivables derived from commodities “in all transactions” are subject to the PACA trust. Appellant argues that this reference to “all transactions” is limited to transactions involving commodities that actually cross state lines. Appellant points to PACA section 499a(3) which defines “interstate or foreign commerce” as follows:
The term “interstate or foreign commerce” means commerce between any State or Territory, or the District of Columbia and any place outside thereof; or between points within the same State or Territory, the District of Columbia but through any place outside thereof; or within the District of Columbia.
7 U.S.C.S. § 499a(3) (Law.Co-op.1978). According to Appellant, this provision limits the application of the PACA trust to commodities that actually cross state lines.
We disagree. PACA section 499a(8) provides:
A transaction in respect of any perishable agricultural commodity shall be considered in interstate or foreign commerce if such commodity is part of that current of commerce usual in the trade in that commodity whereby such commodity and/or the products of such commodity are sent from one State with the expectation that they will end their transit, after purchase, in another, including, in addition to cases within the above general description, all cases where sale is either for shipment to another State, or for processing within the State and the shipment outside the State оf the products resulting from such processing. Commodities normally in such current of commerce shall not be considered out of such commerce through resort being had to any means or device intended to remove transactions in respect thereto from the provisions of this Act....
7 U.S.C.S. § 499a(8) (Law.Co-op.1978). Several factors support the conclusion that this section, and not section 499a(3), is the provision that defines the scope of transactions covered by the PACA trust.
First, section 499e(c)(2), which creates the PACA trust fund, refers to “all transactions” not “all interstate transactions.” If Congress meant to use the narrow definition urged by Appellant, it would have used the latter phrase, not the former.
Second, section 499a(8) modifies and refines the definition of “interstate and foreign commerce” in section 499a(3) by providing which commodities “shall be
considered
in interstate or foreign commerce.” The definition in subsection (8) is essentially consistent with the broad definitions of interstate commerce developed by the Supreme Court.
See, e.g., Heart of Atlanta Motel, Inc. v. United States,
Finally, a broad definition of transactions that are to be included in the PACA trust is consistent with Congress’ attempt to remedy a serious burden on interstate commerce, even at the expense of secured lenders. The statement of findings quoted above makes clear that Congress was aware of the impact the statute would have on secured lenders. Indeed, the finding indicates that blanket security interests that prevent sellers and suppliers from receiving payment for produce were the source of the “burden of commerce” that Congress sought to remedy by enacting PACA.
Moreover, limiting coverage of the trust to transactiоns in which goods actually cross state lines would place a tremendous burden on the parties Congress sought to
The trial court relied upon subsection (8) in determining that all of the Debt- or’s produce transactions and the resulting receivables are subject to the PACA trust because the commodities involved are the type typically sold in interstate commerce and because the sellers involved are the type that Congress intended to protect by implementing PACA. All the Debtor’s transactions would therefore be covered by PACA. As a result, there are no material issues of fact regarding the percentage of intra- versus inter-state transactions. Summary judgment in favor of the Committee was thus appropriate.
3. Prejudgment Interest
a. Award of Interest
The Bank argues that because PACA does not provide for an award of prejudgment interest, interest should not be awarded and, further, that аn award of interest would be inequitable. The Committee responds that the bankruptcy court properly exercised its discretion in awarding prejudgment interest in this case.
Under federal law, courts may allow prejudgment interest even though a governing statute is silent regarding such interest.
Frank Music Corp. v. Metro-Goldwyn-Mayer, Inc.,
In the case at bar, the trial court did not abuse its discretion in awarding the Committee prejudgment interest. The Bank collected the Debtor’s receivables between May and September of 1987. At least one demand letter was sent to the Bank making a PACA claim on or about May 29, 1987. Since that time, the Bank has had possession and use of the money and the PACA claimants have not. Thus, the purpose justifying an award of prejudgment interest is present — compensation to the claimants for the loss of use of the money that the Bank has enjoyed.
Contrary to Appellant’s assertions, “equitable” factors do not indicate that the award of interest was inequitable. The Bank opposed turning over the money in good faith; that is, it had a legitimate argument for not turning over the money. This, however, does not mean that the parties who ultimately are held entitled to the money should not receive interest in order to be made whole. Moreover, the Bank was made aware of the PACA claims in May of 1987 and was aware of PACA when it made the loan to the Debtor. Finally, the Committee was not formed until September of 1989. The Committee commenced the adversary proceeding about 45 days later on October 16, 1989. Thus, the Committee acted promptly once it was formed. These “equitable considerations” do not suggest that the trial court abused its discretion by awarding prejudgment interest.
Finally, Appellant claims that it was denied an opportunity to brief the issue of whether prejudgment interest should have
b. Interest Rate and Commencement Date
Both the appropriate rate and the commencement date for an award of prejudgment interest is left to the broad discretion of the trial court.
Columbia Brick Works,
Counsel for the Cоmmittee indicated at oral argument that prejudgment interest was calculated from the date the Bank collected receivables rather than from the date of the demand letter. Awarding interest from the date the Bank collected the receivables does not penalize the Bank yet still compensates the Committee members for the delay in receiving their money. Thus, we conclude that the trial court did not abuse its discretion by awarding the Committee interest for the entire time the Bank held the money it collected from the Debtor’s receivables.
We also affirm the trial court’s use of the federal judgment interest rate. Appellánt asserts that the court erred by allowing compounding of interest. Yet, the federal interest statute, 28 U.S.C. § 1961, specifically provides for such compounding. Thus, the compounding was not improper and there is no basis for concluding that the trial court abused its discretion by selecting the federal judgment rate of interest.
J. Offset of the Bank’s Collection Costs
The Bank's final argument on appeal is that it should have been allowed to set-off its collection costs against the judgment awarded to the Committee. The Bank further asserts that there was a triable issue of fact regarding thе amount of these costs. The Committee responds that the court properly declined to allow the Bank a setoff for the collection costs because it was not acting in a trustee capacity and because it strenuously resisted turning over the funds. The findings and conclusions entered by the court do not indicate why an offset was not allowed.
In
Melamed v. Lake County Nat’l Bank,
Two bankruptcy cases dealing with PACA trust issues bear on this issue though neither is on point. In
In re Super Spud, Inc.,
The better view, and the one to which this court will subscribe, is that PACA trust beneficiaries, such as plaintiff in this case, take complete priority in payment as to all the assets of the debtor, ahead of the claims of creditors who have valid security interests, ahead of the administrative costs and expenses incurred in this court, and ahead of all оther priority and general creditors.
Id. at 932 (citations omitted).
The other case is
In re United Fruit and Produce Co.,
PACA contains no mechanism for administering and distributing trust assets. As the present case exemplifies, administration will frequently be required. Thebankruptcy trustee of the debtor’s estate has rendered substantial services in collecting the PACA receivable for the benefit of the PACA beneficiaries and in contesting Allied’s claim that it is entitled to a priority payment from this asset. Further, the trustee has an obligation to exаmine all claims made to share in the receivable proceeds. The non-PACA creditors of this estate should not pay for these services and the trustee should not be forced to donate them.
Id. at 13. The court thus held that the bankruptcy trustee could be compensated from the PACA trust for his efforts in collecting and distributing the PACA moneys. Id.
In our view, the United Fruit rule is the better rule. When a bankruptcy trustee collects receivables and those moneys are subsequently turned over to PACA claimants, it should be allowed to offset its collection costs. The Bank here collected the receivables before thеy became stale. This undoubtedly resulted in a higher recovery than if the receivables had not been promptly collected. To deny the Bank any recovery would be unfair to the Bank and provide a windfall to the PACA claimants. Thus, the court should have allowed the Bank an offset for the collection costs.
We note, however, that the amount of the offset should be limited to the “hard” costs of collection such as outside attorney’s fees and expenses that were necessary to the collection effort. The Bank is not entitled to offset in-house counsel time or time for other Bank employees. For instance, the Bank claims that it should be compensated for 452 hours of “officer time” at $100.00 per hour. Apt.E.R. 257. Such overhead expenses are not recoverable. The same applies to the 612 hours of “non-officer time” it seeks to offset. Apt. E.R. 255-256. The trial court should consider which of the other expenses claimed by the Bank were actual and necessary to the Bank’s collection efforts. See Apt.E.R. 254. We remand for a determination of the appropriate amount of offset in favor of the Bank.
5. Attorney’s Fees
The Committee appeals the trial court’s decision not to award attorney’s fees. The Committee asserts that the equities of the case justify such an award in light of the Bank’s vigorous litigation tactics throughout the proceedings. The Bank responds (1) that because there is no statutory basis for awarding fees, Congress did not intend that PACA claimants receive fees; and (2) that it did not “draw out these proceedings” thereby justifying an award of fees on equitable grounds.
We agree with the Bank. The American rule is that the parties bear their own attorney’s fees.
See, e.g., Alyeska Pipeline Serv. Co. v. Wilderness Society,
CONCLUSION
We affirm the trial court’s holdings that it had jurisdiction to determine the adversary proceeding filed by the Committee and that the Committee was entitled to summary judgment. We also affirm the court’s decision to award prejudgment interest and to deny the Committee’s request for attorney’s fees. However, we remand to allow the court to determine the amount of offset the Bank should be allowed.