Exs. 4, 5 and 6). In addition, Andrews' customers were notified that their accounts had been assigned to Platinum and that all Andrews' invoices were to be paid to Platinum (Def. Ex. 1). Thereafter, between June 23, 1993 and December 31, 1993, Platinum regularly advanced to Andrews 60% of the face amount of batches of invoices assigned by Andrews and paid an additional amount upon collection of the entire batch of invoices assigned after subtraction of Platinum's fees and expenses which varied according to the length of time required to collect the batch of invoices.
On January 1, 1994, three months prior to the termination date of the Factoring Agreement, Platinum and Andrews entered into a superseding factoring agreement to cover the next fifteen months and the parties agreed upon an advance rate of 65% (Pl. Ex. 11). Tr. at 90-93 (Ross).
Andrews' President Elliot Ross testified that the superseding factoring agreement and higher advance rate were entered into because he had told officers of Platinum that he needed larger advances in order to pay his bills and because January and February would be slow months since country clubs and certain other customers would be closed those months. Tr. at 93-94 (Ross). Ross testified that he again told Platinum executives Sig Laster and Al Levy in February that Andrews had cash flow problems. Ross also discussed with Laster that Andrews had been posted by a credit rating agency, and Laster told Ross "I saw your name appeared in the book again." Tr. at 102. The "book" referred to PMS, the Food Industry's Clearinghouse Weekly Bulletin to which Platinum subscribed and which on February 21, 1994 listed Andrews as having had accounts turned over for collection by two creditors. Pl. Ex. 32. At or around this time, Ross again told Platinum executives he was having trouble paying his bills. Tr. at 99-100 (Ross).
During this period Platinum furnished Andrews with what it denominated "over advances," i.e., advances of funds collected but not yet due to be paid under the terms of the parties' Agreements. Def. Ex. 14. Total "over advances" to Andrews by Platinum totalled $ 943,527.51, $ 751,860.85 of which occurred between January and May 1994.
On March 7, 1994 and March 25, 1994, at Platinum's request, National Code Corporation caused corporate good standing and U.C.C. lien searches to be made against Andrews. (Def. Exs. 9 and 10).
Platinum offered no evidence that it contacted Andrews' suppliers after Mr. Ross advised Mr. Laster and Mr. Levy that Andrews was having trouble paying its bills or after it received notice of Andrews being posted by the PMS Clearinghouse. Platinum purchased accounts receivable from Andrews in 1994 in the following amounts: January - $ 296,841; February - $ 406,515; March - $ 465,541; April - $ 269,463; May - $ 182,907. (Def. Ex. 2).
On June 2, 1994, Platinum received actual notice, by letter of Leonard Kreinces, Esq., dated June 2, 1994, that Andrews had not paid its produce suppliers along with notice of PACA Trust claims against Andrews' assets. (Pl. Ex. 28). By letter to Kreinces dated July 8, 1994, Platinum stated it was still due approximately $ 47,000 out of $ 140,000 total receivables outstanding from Andrews customers. (Pl. Ex. 29). On September 29, 1994, Platinum notified Kreinces that it was still due $ 18,732.41 out of total Andrews receivables outstanding of $ 91,988.64. (Pl. Ex. 30). Platinum's collection report of collections posted between June 2, 1994 and July 27, 1994 (Pl. Ex. 31) for Andrews' customers shows a total of $ 169,956.44. Platinum has made no payments to Andrews since June 2, 1994. Nor has Platinum made any payments to plaintiffs.
The advances at 60 and 65 percent of face value under the Factoring Agreement and subsequent Purchase and Sale Agreements, whether denominated as sales of the account receivables, or loans by a secured lender as plaintiff Morris Okun, Inc. ("Okun") contends, do not constitute transfers for value. Platinum, under this discount arrangement, cannot be considered a bona fide purchaser. To qualify as a bona fide purchaser, Platinum "must show that any trust property [it] received was transferred 'for value' and 'without notice of the breach of trust.'" C.H. Robinson Co. v. Trust Co. Bank, N.A., 952 F.2d 1311, 1314 (11th Cir. 1992). Under the facts, the PACA trustee, Andrews, was not transferring the accounts for value but at a discount to raise funds and expand the business of the trustee rather than to maintain assets that could satisfy the fund's obligations. Post & Taback, Inc. v. Merrill Lynch Business Financial Services Inc., 859 F. Supp. 757, 758-59 (S.D.N.Y. 1994); A&J Produce Corp. v. CIT Group/Factoring, Inc., 829 F. Supp. 651, 656 (S.D.N.Y. 1993); Restatement (Second) of Trusts § 304 (1959).
More importantly, Platinum's claim that it was a bona fide purchaser fails because it had constructive knowledge of the trust and constructive knowledge of the breach of trust. The trust in this case, a PACA trust, is created by federal statute. Accordingly, the lender had constructive notice of the existence of the trust by virtue of its knowledge of the nature of the borrower's business. See In re Gotham Provision Co., Inc., 669 F.2d 1000, 1011 (5th Cir.) (Packers and Stockyard Act provides constructive knowledge of trust), cert. denied, 459 U.S. 858, 74 L. Ed. 2d 111, 103 S. Ct. 129 (1982); C.H. Robinson, 952 F.2d at 1315 (constructive notice from PACA Statute). Invoices purchased by Platinum revealed that the underlying transactions involved the food industry and perishable agricultural commodities (see Def. Ex. 13), and Andrews' President stated that he informed Platinum regularly that the majority of its business involved perishable agricultural commodities (Tr. at 148-49 [Ross]). Having knowledge of the trust's existence, Platinum, being advised that Andrews was having difficulty paying its suppliers and having notice that two creditors had turned bills owing from Andrews over for collection, had a duty to do more than check as to the filing of any judgments or liens against Andrews. That information put Platinum on notice that a breach of trust could have occurred. It had rights under the Factoring Agreement to conduct an audit of Andrews' books and records, including review of bank accounts and cancelled checks. Pl. Exs. 10 and 11. Conducting such an audit in April 1994 would have revealed at least one bounced check and PACA filings in April 1994, as well as outstanding amounts due for suppliers' deliveries in February 1994. (Pl. Exs. 12 and 24). Instead of conducting such an audit, Platinum advanced Andrews $ 269,463 in April and $ 182,907 in May 1994 (Def. Ex. 2). As the Eleventh Circuit noted:
It seems more accurate to say that a person has notice of a breach of trust when he has actual knowledge of the breach or when he has knowledge of such facts that he should ascertain by inquiry whether the trustee is committing a breach of trust.