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Consumers Produce Company, Inc. v. Fredericktown Produce Co., Inc.

United States District Court, W.D. Pennsylvania

February 19, 2015

CONSUMERS PRODUCE COMPANY, INC. OF PITTSBURGH; PREMIER PRODUCE CO., INC.; J.E. CORCORAN COMPANY, Plaintiffs,
v.
Fredericktown PRODUCE CO., INC.; DONNA M. GILES EXECUTRIX OF THE ESTATE OF GENE M. GILES; and NORTHWEST SAVINGS BANK, Defendants.
v.
DONNA M. GILES EXECUTRIX OF THE ESTATE OF GENE M. GILES, Cross-Defendant.

OPINION RE ECF NOS. 39, 40

MAUREEN P. KELLY, Chief Magistrate Judge.

Pending before the Court are cross-motions for summary judgment (ECF Nos. 39 and 40), which seek to determine first, whether, as a matter of law, the proceeds of a life insurance policy purchased and paid for by Fredericktown Produce Co., Inc. ("Fredericktown") are an asset of a statutory trust created by the Perishable Agricultural Commodities Act ("PACA"), 1930, § 1 et seq., 7 U.S.C. § 499a et seq, and, second, if so, whether Defendant Northwest Savings Bank ("NSB") must disgorge policy proceeds received by it after the death of the named insured. For the following reasons, the Court finds that the policy was a PACA asset and that NSB is not entitled to retain the proceeds. Accordingly, the Motion for Summary Judgment filed on behalf of Plaintiffs Consumer Produce Company, Inc. of Pittsburgh, Premier Produce Co., Inc. and Coface North America, Inc. as assignee of J.E. Corcoran Company (collectively, "Plaintiffs" or "CP"), (ECF No. 40), is granted, and the Motion for Summary Judgment filed on behalf of NSB, (ECF No. 39), is denied.

I. FACTUAL AND PROCEDURAL BACKGROUND

The parties have filed a Stipulation of Undisputed Facts, (ECF No. 38), from which all facts necessary for the disposition of the pending motions can be drawn.

From its inception, Defendant Fredericktown was a business engaged in buying and selling wholesale quantities of produce. Gene Michael Giles ("Mike Giles") was Fredericktown's sole owner and principal. Fredericktown operated subject to and licensed under PACA, and was a trustee thereunder with an obligation to pay its produce suppliers pursuant to the PACA trust provisions set forth at 7 U.S.C. § 499e(c). Plaintiffs are licensed produce suppliers under PACA, and acted to preserve their trust rights by including the required statutory language on all invoices.

Between May 31, 2013, and January 24, 2014, Plaintiffs sold to Fredericktown wholesale quantities of produce worth $361, 992.57, an amount which remains unpaid. In attempting to recoup the debt owed, Plaintiffs seek to recover $200, 000, paid to NSB through the proceeds of a life insurance policy purchased by Fredericktown from Valley Forge Life Insurance Company, [1] on March 28, 1997.

As initially issued in 1997, Fredericktown was the designated beneficiary of the policy, which insured the life of Mike Giles, with a total death benefit of $250, 000. In 2007, NSB received an assignment of the policy in conjunction with a mortgage transaction between NSB, Mike Giles and his wife, Donna Giles.

In the course of the 2007 transaction, NSB provided a mortgage loan to Mike and Donna Giles in the amount of $1, 135, 000 (the "Giles Mortgage"). The funds were used for the acquisition of property in their names, as tenants in the entirety, and for the construction of a commercial building on the property, also owned by them. Since its construction, the building has housed Fredericktown's business operation as well as those of an affiliated business known as Country Fresh Market. Fredericktown does not own the property or the building, and has paid rent directly to NSB for its use of the building.

In accordance with the terms of the mortgage transaction, Mike Giles signed a guaranty for the mortgage and granted NSB a security interest in Fredericktown's assets as collateral for the loan. As additional collateral, NSB required and received an assignment of the 1997 life insurance policy owned and paid for by Fredericktown, insuring the life of Mike Giles. The assignment was executed by Mike Giles, acting in his capacity as Fredericktown's President, and Donna Giles, as the "Policyowner's Spouse." (ECF No. 38-2). Under the assignment, $200, 000 of the policy's total death benefit of $250, 000 would be paid to NSB if owed at the time of death, or upon default on the loan. Id . Fredericktown reserved its right to the remaining $50, 000, to be paid in accordance with the terms of the policy as issued Id..

Fredericktown and NSB notified the insurer of the assignment and submitted the appropriate documentation to Jackson National. The documentation does not reflect that NSB's recovery under the policy is limited to $200, 000, but this recovery limitation was an acknowledged part of the agreement between NSB and Mike Giles, on behalf of Fredericktown. Pursuant to the agreement, NSB was not required to make premium payments on the policy, and none were made by it. Rather, all premiums were paid by Fredericktown on a quarterly basis, from an account into which proceeds from the sale of agricultural products were placed. Fredericktown also remitted monthly payments for the Giles' mortgage to NSB, and listed the payments on its books as "rent."

Mike Giles passed away on January 21, 2014. In response to NSB's demand for payment dated February 25, 2014, Jackson National forwarded $200, 000 directly to NSB. The remaining $50, 000 was sent by Jackson National to Fredericktown, and was ultimately deposited in Fredericktown's bank account. In April 2014, after this lawsuit was filed, NSB received a payment from Fredericktown in the total amount of $55, 672.17. As of May 31, 2014, Fredericktown had $52, 293 in its NSB accounts.

NSB does not dispute that pursuant to PACA, Plaintiffs have a superior right to the sums received by NSB from Fredericktown in April 2014 and to any sums remaining in Fredericktown's accounts. The parties further agree that the first notice NSB had that Fredericktown failed to pay produce suppliers occurred when NSB was served with this lawsuit on March 15, 2014. There is no evidence that NSB knew or should have known of any breach by Fredericktown of its obligations under PACA prior to that date.

As of the filing of the parties' cross-motions for summary judgment, all substantial assets of Fredericktown have been liquated and it is no longer operating as a wholesale produce business. The property, purchased by Donna Giles and her deceased husband as tenants in the entirety, is presumed to now be the exclusive property of Donna Giles, subject to the NSB mortgage.

II. STANDARD OF REVIEW

Pursuant to Federal Rule of Civil Procedure 56(a), "[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). "[T]his standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986) (emphasis in original).

A disputed fact is "material" if proof of its existence or nonexistence would affect the outcome of the case under applicable substantive law. Id. at 248; Gray v. York Newspapers, Inc., 957 F.2d 1070, 1078 (3d Cir. 1992). An issue of material fact is "genuine" if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson, 477 U.S. at 257; Brenner v. Local 514, United Brotherhood of Carpenters and Joiners of America, 927 F.2d 1283, 1287-88 (3d Cir. 1991).

When determining whether there is a genuine issue of material fact, the court must view the facts and all reasonable inferences in favor of the nonmoving party. Moore v. Tartler, 986 F.2d 682 (3d Cir. 1993); Clement v. Consolidated Rail Corporation, 963 F.2d 599, 600 (3d Cir. 1992). In order to avoid summary judgment, however, parties may not rely on unsubstantiated allegations. Parties seeking to establish that a fact is or is not genuinely disputed must support such an assertion by "citing to particular parts of materials in the record, " by showing that an adverse party's factual assertion lacks support from cited materials, or by demonstrating that a factual assertion is unsupportable by admissible evidence. Fed.R.Civ.P. 56(c)(1); see Celotex, 477 U.S. at 324 (requiring evidentiary support for factual assertions made in response to summary judgment). The party opposing the motion "must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 586 (1986). Parties must produce evidence to show the existence of every element essential to its case that they bear the burden of proving at trial, for "a complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Celotex, 477 U.S. at 323; see Harter v. G.A.F. Corp., 967 F.2d 846, 851 (3d Cir. 1992). Failure to properly support or contest an assertion of fact may result in the fact being considered undisputed for the purpose of the motion, although a court may also give parties an opportunity to properly provide support or opposition. Fed.R.Civ.P. 56(e).

III. DISCUSSION

This dispute is governed by the trust provision of PACA, 7 U.S.C. § 499e(c)(2). Plaintiffs are producers of perishable agricultural commodities and contend that pursuant to PACA, they are entitled to disgorge the proceeds of the subject life insurance policy from NSB. Plaintiffs argue that the insurance policy, having been purchased with Fredericktown's produce earnings, is a PACA trust asset that should have been held for the benefit of unpaid produce suppliers. NSB counters that Plaintiffs are not entitled to disgorge these proceeds, first, because the 2007 assignment of the life insurance policy to NSB removed the policy and any proceeds from the trust and, second, because NSB is a "bona fide purchaser, " having received the proceeds for "value." For the following reasons, the Court finds that the policy and proceeds are PACA trust assets and, further, that NSB does not qualify as a bona fide purchaser "for value." Therefore, NSB is not entitled to retain the amounts received.

1. PACA

The United States Court of Appeals for the Third Circuit in Weis-Buy Services, Inc. v. Paglia, 411 F.3d 415, 419-20 (3d Cir. 2005), explained the purpose of PACA is "to deter unfair business practices and promote financial responsibility in the perishable agricultural goods market."

The Act was designed primarily for the protection of the producers of perishable agricultural products - most of whom must entrust their products to a buyer or commission merchant who may be thousands of miles away, and depend ...

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