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UNITED STATES BANKRUPTCY COURT

DISTRICT OF ALASKA

 

In re:  

                                                                     

KING FISCHER FISHERIES, LLC,

 

                                 Debtors.  

Case No. A00-00695-DMD

Chapter 11

ORDER GRANTING FISHER CREDITORS’ MOTION

FOR SUMMARY JUDGMENT AND DENYING CROSS-MOTIONS

FOR SUMMARY JUDGMENT


                      The committee of fisher creditors’ motion for summary judgment and the cross-motions for summary judgment filed by the Unsecured Creditors Committee, fish packers and processors lien claimants and Chapter 11 Trustee, Larry Compton duly came before the court for a hearing on June 4, 2001. Appearances were made by the following:



Attorney Creditor
Spencer Sneed Committee of Fisher Creditors
Gary Sleeper Larry Compton, Chapter 11 Trustee
Thomas Yerbich Unsecured Creditors Committee
Scott Henrie Phil Erickson, Leonard & Sherly Ann Vohs,
Ron Jolin, Ouraria LLC (F/V Ursa Minor),
Dave Tolley, lien claimants under the fish
packers and processors lien statutes
Robert McFarlane Seattle-Tacoma Box Company
Karen Benbler Hugh R. Wisner, Tender Jacquelyn W
Mohamed Lahnansi appeared on his own behalf.

                      After hearing the arguments of counsel and reviewing their memoranda, IT IS ORDERED:


7 ABR 163   TOP  

                      1. The Committee of Fisher Creditors’ motion for summary judgment is granted. A separate order will be entered granting the Committee of Fisher Creditors’ motion for interim distribution of proceeds.


                      2. The cross-motions for summary judgment submitted by the Unsecured Creditors Committee, fish packers and processors lien claimants and the Chapter 11 Trustee, Larry Compton, are denied.


Background



                      The debtor bought and processed fish from fishermen in Bristol Bay and Cook Inlet in 2000. The vast majority of the fish came from Bristol Bay. It sold the fish through a contract with E and E foods. The processed fish were then transported to Seattle and Japan. When the debtor filed for Chapter 11 relief on July 19, 2000, all of its inventory had been shipped out of Alaska. The debtor filed a motion for an interim distribution of proceeds to fishermen on August 10, 2000. A chapter 11 trustee was appointed August 25, 2000. The debtor’s motion was denied without prejudice on September 21, 2000. A new motion for an interim distribution was filed on January 18, 2001 by the fisher creditors committee. That motion seeks to distribute $375,000.00 of the $938,000.00 cash held by the trustee to fishermen holding valid liens. No funds are to be paid to liens recorded under the fish packers and processors lien statute, to tender operators, Chapter 11 Trustee Larry Compton, or to unsecured creditors. The debtor has no assets other than the cash, accounts receivable and litigation claims. Total liabilities exceed $3.4 million. Fisherman lien claims total $1,572,785.00. Packers and processors’ 7 ABR 164   TOP   liens total $837,516.00. Priority wage claims total $143,000.00 and there are $893,000.00 in general unsecured claims.


                      The committee of fisher creditors now seeks summary judgment on its motion for an interim distribution. Pursuant to agreement, the matter was noticed to all parties and has been conducted as a contested matter. Objections and cross-motions for summary judgment have been filed by the Unsecured Creditors Committee, creditors who rendered tendering services to the debtor, Chapter 11 Trustee Larry Compton and certain individual creditors. It is a core proceeding under 28 U.S.C. § 157(b)(2)(K). This court has jurisdiction in accordance with 28 U.S.C. § 1334(b).


Analysis


                        State Law controls the validity and effect of state statutory liens in bankruptcy. 1. Footnote The trustee and the Unsecured Creditors Committee claim that fishermen’s liens arising under state law are avoidable under 11 U.S.C. § 545(2), notwithstanding the provisions of § 546(b). Under their argument, the failure of the Legislature to specifically name bona fide purchasers in A.S. 34.35.391(c) 2. Footnote means that the trustee as a bona fide purchaser would have superior rights in the proceeds. This argument ignores the fact that A.S. 34.35.391 is to be liberally construed in favor of the fishermen. 3. Footnote I see 7 ABR 165   TOP   no reason to change my holding in In re Eagle Fisheries. 4. Footnote The fishermen’s liens are not avoidable under § 545(2).


                      Similarly, packers and processors’ liens are subject to the same protections. A.S. 34.35.340(a) 5. Footnote uses the identical priority language of the fishermen’s lien statute. Other language found in the packers and processors’ lien act also indicates ordinary bona fide purchasers are inferior to the rights of lien claimants. 6. Footnote The trustee’s lien avoidance powers do not trump the rights of packers and processors holding valid lien claims.


                      The Trustee and the Unsecured Creditors Committee argue that the fishermen’s liens do not attach to sale proceeds. The fishermen’s lien only attaches to “property of the fish processor” when the lien accrued, not “after-acquired property.” The debtor had a pre-petition sale contract with E & E Foods. Those contract rights were property of the debtor and subject to a lien from the inception of the fish sale. The fact that the debtor eventually received cash emanating from those contract rights did not extinguish the lien: the contract rights and their eventual proceeds were subject to valid liens. Nor does my reading of A.S. 34.35.335 preclude packers and processors from acquiring a lien in such proceeds.


                        7 ABR 166   TOP   Fishermen and packers and processor lien claimants hotly contest the relative priority of their two classes of liens, each seeking a preferred position over the other. 7. Footnote The lien statutes are in conflict. This court must interpret the conflicting statutes. In interpreting Alaska statutes, courts should adopt the rule of law most persuasive in light of precedent, reason and policy. 8. Footnote Unfortunately there is no Alaska precedent interpreting the dilemma posed by the conflicting lien statutes. Reason and policy, however lead me to conclude that the liens of fishermen take priority over the liens of fish processors and packers.

                      Fishermen are the obvious and vital first link in the volatile chain that forms Alaska’s seafood industry. There can be no seafood industry without fish and there can be no processing or packing without fish. The fish packers and processors’ lien statute has been on the books since 1949. Although fishermen may claim a lien under the statute, nothing in the act gives a fisherman priority over fish processors or packers who also have valid liens under the packers and processors lien act. Assuming each has a valid lien, if there are insufficient funds to pay them both, “[T]he court shall, as nearly as practicable, determine what particular item of the property subject to the lien is the product in whole or in part of the labor or material furnished by each of the several 7 ABR 167   TOP   claimants and for which each claims a lien, and shall give preference accordingly.” 9. Footnote In other words, a court pro-rates valid liens on processed fish.


                      In my view, the fishermen’s lien statute was adopted to avoid such a pro-ration. It was enacted in 1982 to give fishermen a clear priority over other lien creditors. The Legislature was dissatisfied with the treatment fishermen received in processor bankruptcies. 10. Footnote By giving fishermen a specific priority lien, they accomplished their goal. If fish products or proceeds were to continue to be prorated, or if packers and processors’ liens were to supercede fishermen’s liens, the 1982 legislation would serve no purpose. I agree with the fishermen’s committee, Sutherland and others: the more recent of two conflicting statutes should govern. 11. Footnote I conclude that reason and policy requires this court to recognize the fishermen’s liens supercede the liens of packers and processors.


                      Because of my ruling on the relative priority between fishermen and processors and packers’ liens, the eligibility of tenderers to qualify for packers and processors’ liens and any issues relating to late filed packers and processors’ lien claims are moot issues. Summary judgment for the fisher creditor’s committee is appropriate.


                 DATED: August 27, 2001.


            BY THE COURT




            DONALD MacDONALD IV
            United States Bankruptcy Judge



N O T E S:

1.     In re Southern California Plastics, Inc., 165 F. 3d 1243, 1247 (9th Cir. 1999).

2.     A.S. 34.35.391(c) provides: "The lien provided in this section is preferred, prior, and superior to a mortgage, attachment, claim, or demand made or recorded in the recording district in which the property is located after the date on which the fish are delivered to the buyer of the fish."

3.     A.S. 34.35.930.

4.     1 A.B.R. 200 (Bankr. D. Alaska 1990).

5.     A.S. 34.35.340(a) provides: “A lien under AS 34.35.320-34.35.390 is preferred, prior, and superior to a mortgage, attachment, claim, or demand made or recorded in the recorder’s office of the recording district where the property subject to the lien is located after (1) the commencement of the work for which the lien is claimed; (2) the material is furnished for which the lien is claimed.

6.     A.S. 34.35.340(b); A.S. 34.35.355. See also In re Loretta Winery, Ltd., 898 F. 2d 715 (9th Cir. 1990) (wine productions lien superior to trustee's right as BFP) and In re Berg, 121 F. 3d 535 (9th Cir. 1997) (federal tax lien superior to trustee's avoidance powers under § 545(2)).

7.     The priority provision of the fishermen's lien statute is set forth in footnote two, infra. The priority provision of the packers and processors' lien statute is set forth in footnote four, infra.

8.     State Department of Revenue, CSED v. Leitch, 999 P.2d 782, 783 (Alaska 2000).

9.     A.S. 34.35.360(b).

10.     Committee Minutes from hearing on House Bill 637, Senate Resources Committee, Alaska State Legislature, April 30, 1982.

11.     In re Tapp, 16 B.R. 315, 321 (Bankr. D. Alaska 1981); 2B Sutherland on Statutory Construction § 51.02 at page 121 (5th ed. 1992).