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POST & TABACK, INC. v. MERRILL LYNCH BUS. FIN. SER

August 11, 1994

POST & TABACK, INC., et al, Plaintiffs,
v.
MERRILL LYNCH BUSINESS FINANCIAL SERVICES INC., et al, Defendants.



The opinion of the court was delivered by: MARY JOHNSON LOWE

 MARY JOHNSON LOWE, D.J.

 Before the Court is a motion for summary judgment filed by defendant, Business Funding Group, Inc. ("BFG"), a Massachusetts corporation engaged in the business of purchasing commercial accounts receivables at discounted rates. *fn1" BFG's summary judgement motion seeks a dismissal of the plaintiffs' Complaint against BFG. For the reasons stated below, BFG's summary judgement motion is denied.

 BACKGROUND

 Plaintiffs are dealers of agricultural commodities who sold commodities (fruits and vegetables to Western Growers, Inc. ("Western") during 1989 and 1990. In connection with those sales, the plaintiffs filed, with the Secretary of Agriculture, notices of intention to preserve trust benefits pursuant to the Perishable Agricultural Commodities Act ("PACA"). *fn2"

 Plaintiffs filed the above action on June 11, 1991, claiming that they are trust beneficiaries under PACA. Plaintiffs contend that defendants received PACA assets and that defendants are constructive trustees for the amounts claimed. Plaintiffs claimed that they are entitled to recover those amounts.

 Thereafter, defendants, Merrill Lynch and BFG, filed motions for summary judgment against the plaintiffs on the complaint. Merrill Lynch argued that because it acquired the trust property for value and without notice of the breach of trust, it was a bona fide purchaser and thus took the property free of the trust.

 By Order dated September 23, 1993 (the "Order"), this Court dismissed the plaintiffs' claims against Merrill Lynch. The Court, citing to C.H. Robinson Co. v. Trust Co. Bank, N.A., 952 F.2d 1311 (11th Cir. 1992), stated that PACA trusts operate in accordance with traditional trust principles. The Order stated that under those traditional principles, a purchaser of trust property can take that property free of the trust if the property is transferred for value and without notice of the breach of trust. (See Order at 6). The Court dismissed the plaintiffs' complaint against Merrill Lynch, finding that Merrill Lynch, did in fact, receive the trust property for value and without notice of the breach of trust. (See Order at 7-8).

 BFG argued that the plaintiffs' complaint against BFG should also be dismissed because it too was a bona fide purchaser. This Court, however, found that BFG was situated differently from Merrill Lynch. The Court found that, since BFG conceded that it had constructive knowledge of the PACA trust and purchased Western's accounts receivables for a discount, BFG was on constructive notice of the breach of trust. The Court stated in the Order:

 
"A breach occurred in the present case not simply because a sale was made, but because the sale was made at a discount to raise funds for the trustee, Western, rather than to maintain assets that could satisfy Western's obligations to unpaid sellers and suppliers. BFG should have known that Western was breaching its obligations as trustee when it offered to sell trust property at a discount."

 (Order at 14,15). The Court concluded that BFG had notice of facts sufficient to require it to make an inquiry of Western about whether the accounts receivables were encumbered by trust filings. The Court found that no evidence had been submitted to show that BFG conducted any inquiry whatsoever and thus BFG could not be considered a bona fide purchaser as a matter of law.

 BFG argued that, in the event its bona fide purchaser defense was rejected, the Court should nevertheless grant summary judgment to BFG because PACA is unconstitutional. BFG claimed that PACA was unconstitutional because BFG had no means of obtaining actual knowledge of the trust notices filed by plaintiffs. Plaintiffs argued that PACA notices were available through the Freedom of Information Act ("FOIA"). This Court determined that a material question of fact existed on the issue of whether PACA notices were available to BFG. The Court denied BFG's motion for summary judgment, directed the parties to submit affidavits addressing the question of whether PACA trust notices were publicly available and to what degree, and stated that BFG could refile its motion for summary judgment on the issue of constitutionality following submission of the affidavits.

 Thereafter, plaintiffs' counsel, Mr. Leonard Kreinces, wrote to the United States Department of Agriculture (the "Department") on or about October 22, 1993 to ascertain its policy with respect to requests by members of the public to obtain copies of trust notices filed with the Department. In an October 29, 1993 letter ("the Letter"), J.D. Flanagan, Chief of the PACA Branch Fruit and Vegetable Division, responded to Mr. Kreinces' letter. The Letter stated that "trust notices involving solvent produce firms are not publicly available even under the Freedom of Information Act because the information contained within the trust notice contains financial information which is privileged or confidential and is exempt pursuant to 5 U.S.C. 552(B)(4)." (See Exhibit A of Defendant's Affidavit). The Letter also stated that while a particular account debtor remains in business, trust notices or a listing of trust filings are only available to the firm which filed the notices and to the firm against which notices are filed. After receiving a copy of the Letter, BFG filed an affidavit, dated November 8, 1993, stating that PACA trust notices were not publicly available ...


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