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HEDRICK v. S. BONACCURSO & SONS

September 27, 1978

James A. HEDRICK
v.
S. BONACCURSO & SONS, INC., Continental Bank, Samuel Bonaccurso, and Mary Bonaccurso



The opinion of the court was delivered by: HANNUM

MEMORANDUM

Presently before the Court are four cross-motions for summary judgment. It appearing that genuine issues of material fact exist as to whether Mary Bonaccurso is a "packer" as defined by 7 U.S.C. § 191 and as to the terms of the agreement for the sale of cattle by plaintiff to S. Bonaccurso & Sons, Inc., which agreement forms the basis for defendants' counterclaims, the motion of individual defendants Mary Bonaccurso and Samuel Bonaccurso for summary judgment against plaintiff is DENIED, and plaintiff's motion for summary judgment against individual defendants Mary Bonaccurso and Samuel Bonaccurso is similarly DENIED. It appearing that plaintiff is an "unpaid cash seller" entitled to participate in a statutory trust created by the Packers and Stockyards Act, as amended, 7 U.S.C. § 196, but that the Court cannot determine all the claims of all the parties by these motions, plaintiff's motion for summary judgment against defendant Continental Bank is DENIED, and defendant Continental Bank's motion for summary judgment against plaintiff is DENIED. Partial summary adjudication under F.R.Civ.P. 56(d) is entered by appropriate order on the material facts recited in Part 7 of this opinion.

 Factual Background.

 In separate transactions from the 4th through the 19th of April, 1977, plaintiff sold cattle to S. Bonaccurso & Sons, Inc., (SBI) with a purchase price of over $ 260,000. On May 13, 1977, plaintiff notified SBI by letter to the attention of Samuel Bonaccurso that payment had not yet been received and that plaintiff was notifying the Packers and Stockyards Administration of the Department of Agriculture of SBI's delay in payment so as to preserve plaintiff's interest in a statutory trust under which the purchaser holds livestock and proceeds therefrom for the benefit of its unpaid cash sellers. In June, 1977, SBI defaulted in repaying working capital loans to Continental Bank which held a perfected security interest in SBI's inventory and proceeds therefrom under Pennsylvania's version of Article 9 of the Uniform Commercial Code, PA.STAT.ANN. tit. 12A § 9-101 Et seq. On June 20, 1977, Continental Bank exercised its rights upon SBI's default, took possession of livestock inventory, and directed certain of SBI's account debtors to make payment directly to the Bank instead of to SBI. *fn1"

 Procedural Background. *fn2"

 The amended complaint seeks recovery on four counts for damages arising out of plaintiff's sale of cattle from April 4, 1977, through April 19, 1977. Count I is an action on the price against S. Bonaccurso & Sons, Inc. (SBI), for cattle admittedly accepted but not paid for. Count II also against SBI seeks recovery for certain violations of the Packers and Stockyards Act (the Act), 7 U.S.C. § 181 Et seq. Count III against Continental Bank asserts that plaintiff's right to livestock delivered by plaintiff to SBI and proceeds therefrom are impressed with a statutory trust in plaintiff's favor under the Act which defeats Continental Bank's perfected security interest. Count IV against Mary Bonaccurso and Samuel Bonaccurso, seeks recovery for violations of the Act by their corporation, SBI.

 The answer of Mary Bonaccurso and SBI admit plaintiff delivered cattle and has not yet been paid by SBI. By way of defense, which in the interest of justice the Court, under F.R.Civ.P. 8(c), will treat as a counterclaim, Mary Bonaccurso and SBI allege that plaintiff failed to deliver all the cattle ordered, certain deliveries were short in weight and number of cattle, certain cattle were dead and therefore unacceptable for the purposes for which they were purchased, and all shipments for which plaintiff charged SBI were not actually delivered. SBI admits it is a "packer" under the Act. Mary Bonaccurso and the answer of Samuel Bonaccurso admit they are officers of SBI but deny they are "packers" subject to the Act and deny they are responsible for any acts, omissions or failures of SBI under the Act since they did not actively participate in the operation of the business and were without knowledge of the dealings between plaintiff and SBI.

 The answer of Continental Bank denies plaintiff has a superior claim to livestock delivered by plaintiff in April, 1977, and proceeds therefrom. Continental Bank asserts it had a superior perfected security interest in those assets to which it had recourse when SBI defaulted. Continental also attacks the constitutionality of Congress creating a "secret lien" in favor of plaintiff superior to Continental's perfected security interest. *fn3" The answers of both SBI and Continental Bank deny plaintiff was a "cash seller" under the Act.

 Part 1: Choice of Law.

 The first issue for decision is which law federal or state determines the priority of plaintiff's and Continental Bank's claims to SBI's livestock inventory and proceeds? Prior to the 1976 amendments, the United States Supreme Court in Mahon v. Stowers, 416 U.S. 100, 111, 94 S. Ct. 1626, 1631, 40 L. Ed. 2d 79 (1974), held that the Packers and Stockyards Act and regulations issued pursuant thereto providing that sellers are to be paid by the close of the next business day after the livestock purchase, 9 C.F.R. § 201.43,

 
"(did) not necessarily support a conclusion that the regulation, designed to regulate payment procedures between a buyer and seller, was also intended to determine security rights between the sellers and third parties holding a valid (security interest under state law) on the packer's assets. Whatever might be the policy reasons for insuring that packers did not take unnecessary advantage of cattle sellers by holding funds for their own purposes, it is hard to see that those reasons would automatically require that such sellers stand on better footing than persons who have extended secured credit to a packer. And the regulation (9 C.F.R. § 201.43) in no way suggests an intention to override established principles of state commercial law which might strike a different balance."

 On remand, the Court of Appeals for the Fifth Circuit in Matter of Samuels & Co., Inc., 526 F.2d 1238, 1248 (5th Cir. 1976), determined the unpaid seller's claim to livestock and proceeds was subordinate to the financier's perfected security interest under the Uniform Commercial Code as adopted in Texas.


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