Carroll E. Voliva and Cheryl J Voliva

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
NEW BERN DIVISION
IN RE:
CARROLL E. VOLIVA,
CHERYL J. VOLIVA,
DEBTORS
CHAPTER 13
CASE NO. 10-10031-8-RDD
ORDER SUSTAINING DEBTORS’ AMENDED OBJECTION
TO PROOF OF CLAIM OF HOMER SMITH SEAFOOD, INC.
Pending before the Court is the amended1 Objection to Proof of Claim #6-2, of Homer Smith
Seafood, Inc., filed by Carroll E. Voliva and Cheryl J. Voliva (the “Debtors”) on April 20, 2012 and the
Objection to Motion Objecting to Proof of Claim #6-2, of Homer Smith Seafood, Inc., filed by L.D.
Amory & Co. Inc., O’Neal’s Sea Harvest, Inc., Homer Smith Seafood, Inc., and Garland Fulcher
Seafood (the “Creditors”) on May 21, 2012. The Court conducted a hearing on June 5, 2012 in Wilson,
North Carolina to consider these matters.
1The Debtors filed a Motion Objecting to Proof of Claim of Homer Smith Seafood, Inc.
on April 18, 2012. The Debtors filed an amended Motion Objecting to Proof of Claim of Homer
Smith Seafood, Inc. on April 20, 2012 (hereinafter referred to as the “Amended Objection”).
Both the original and amended motion are entitled “Motion Objecting Proof of Claim #6-2, Filed
by Homer Smith Seafood, Inc.”
SO ORDERED.
SIGNED this 12 day of July, 2012.
________________________________________
Randy D. Doub
United States Bankruptcy Judge
____________________________________________________________
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On December 7, 2010, the Debtors filed a voluntary petition for relief under Chapter 13 of the
Bankruptcy Code. On Schedule D, the Debtors listed a secured claim for Homer Smith Seafood, Inc.
(“Homer Seafood”) in the amount of $5,087.50. On August 30, 2010, judgments were entered in favor
of the Creditors and filed in the General Court of Justice, Pamlico County, District Court Division as
follows: (1) Garland Fulcher Seafood, Inc. in the amount of $13,042.58 plus costs and interest; (2)
Homer Seafood in the amount of $5,087.50 plus costs and interest; (3) O’Neal’s Sea Harvest, Inc. in
the amount of $31,305.45 plus costs and interest; and (4) L.D. Armory and Company, Inc. in the amount
of $3,920.80 plus costs and interest.
On October 5, 2011, Homer Seafood filed amended proof of claim 6-2 in the amount of
$5,375.89, based on a money judgment secured by real estate. Homer Seafood listed the entire amount
as being entitled to priority under 11 U.S.C. § 507(a)(6)(B).
The Debtors’ Plan has not yet been confirmed. 	On April 20, 2012, the Debtors filed the
Amended Objection to Homer Seafood’s Proof of Claim 6-2, objecting to the claim being entitled to
priority. The Debtors contend no evidence was attached to the proof of claim demonstrating Homer
Seafood’s priority status. The Debtors request that the Court disallow the claim.
Homer Seafood responds that its claim in the amount of $5,375.89 is entitled to priority and the
elements of 11 U.S.C. § 507(a)(6)(B) have been satisfied. Further, Homer Seafood contends that it did
attach documentation to the proof of claim to support its judgment lien and it appropriately indicated
its claim as a priority claim on the proof of claim.
At the hearing on June 5, 2012, Alice Willis, an owner of Homer Seafood, testified as to the
nature of Homer Seafood’s business. She testified that in 2008, Homer Seafood owned three fishing
trawlers. Ms. Willis represented that Homer Seafood was advised by an attorney to set up each trawler
as its own corporation for liability purposes. She testified that this was a common practice in the fishing
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industry. Ms. Willis testified that each trawler had its own captain and Homer Seafood had control over
the trawlers, the captains, and to whom fish was sold. 	She testified that Homer Seafood had the
authority to fire and hire captains and that Homer Seafood held itself out to the public as fishermen.
Homer Seafood introduced into evidence permits issued by the North Carolina Division of
Marine Fisheries and permits issued by the United States Department of Commerce allowing the
trawlers to fish in federal waters. Based on the permits, the trawlers were permitted to fish for the
following, among others: flounder, Atlantic dolphin/wahoo, south Atlantic rock shrimp, shark
incidental, south Atlantic penaeid shrimp, swordfish incidental, snapper-grouper, wreckfish, and
Atlantic tuna. Homer Seafood was permitted to purchase fish from the trawlers and sell the fish to the
public. Ms. Willis testified that the trawlers were also permitted to fish in Virginia and New Jersey and
when the trawlers fished in these states, Homer Seafood authorized the trawlers to sell fish to entities
other than Homer Seafood.
Ms. Willis testified that the Debtors, through their company Carroll’s Seafood, purchased
flounder from Homer Seafood on an open account from approximately February 1, 2008 through
February 26, 2008. Homer Seafood billed Carroll’s Seafood for the flounder in the amount of $5,087.50.
Carroll’s Seafood failed to make payment after repeated demands of Homer Seafood. Homer Seafood
filed an action against the Debtors and Carroll’s Seafood in the District Court Division of Pamlico
County, North Carolina. Judgment was entered in favor of Homer Seafood in the sum of $5,087.50 plus
costs and interest.
Carroll Voliva, the male debtor and owner of Carroll’s Seafood, testified as to the nature of his
seafood business. He testified he is a wholesaler who buys and sells fish and owns trucks to deliver the
fish along the east coast of the United States. His practice was to purchase whole fish from sellers and
pick the fish up from the sellers at the boat dock. When he picked the fish up, the fish were already
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packed in crates and on ice. He then loaded the crates onto his truck and transported the fish back to
Carroll’s Seafood’s warehouses. The warehouses were located adjacent to the Debtors’ residential
property. One warehouse was approximately 65' x 65'. The other warehouse was approximately 40' x
28'. From there, the fish were loaded onto different route delivery trucks depending on where the fish
were being transported. He testified that the fish were never taken out of the crates for inspection.
Mr. Voliva represented that prior to the time he purchased the flounder at issue, 	Carroll’s
Seafood sold fish to buyers in Japan. He testified that buyers in Japan only accepted sushi quality fish.
To ensure the fish he sent to Japan were sushi quality, he laid all of the fish out on tables in his
warehouses and separated the fish based on their quality. He then packed the sushi quality fish on ice
in styrofoam, labeled the fish and then transported the fish to the airport where they were flown to the
buyers in Japan. Mr. Voliva testified that during the time period in which the fish were sold to the
Debtors, Carroll’s Seafood was not selling fish to Japan and he did not use the warehouses.
Mr. Voliva represented that Carroll’s Seafood was a wholesaler and that the business did not
have a license to process fish.
Debtors argue that Homer Seafood has not satisfied the elements of 11 U.S.C. § 507(a)(6)(B).
Specifically, the Debtors contend that Homer Seafood was not a United States fisherman as required
by the statute, because Homer Seafood and the fishing boats are separate legal entities. While the fishing
boats may be United States fisherman, the Debtors contend Homer Seafood is not a United States
fisherman. Further, the Debtors contend that the Debtors were not engaged in operating a fish produce
storage or processing facility pursuant to 11 U.S.C. § 507(a)(6)(B) because the Debtors’ did not engage
in any acts that would constitute “storage” or “processing.”
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Homer Seafood responds that although it set up each fishing trawler as its own separate
corporation, it had complete control over the fishing trawlers and the captains. Homer Seafood argues
that the word “processing” should be interpreted broadly to include the Debtors’ practices.
For the reasons set forth below, the Amended Objection to Proof of Claim #6-2, of Homer
Seafood is SUSTAINED.
DISCUSSION
11 U.S.C. § 507 designates certain claims that are entitled to priority in bankruptcy
cases. Specifically, 11 U.S.C. § 507(a)(6)(B) provides:
(a) [t]he following expenses and claims have priority in the following order: . . . .
(6) Sixth, allowed unsecured claims of persons - . . .
(B) engaged as a United States fisherman against a debtor who has acquired fish or
fish produce from a fisherman through a sale or conversion, and who is engaged in
operating a fish produce storage or processing facility -
but only to the extent of $5,775 for each such individual.
11 U.S.C. § 507(a)(6)(B).
The plain language of section 507(a)(6)(B) requires the claimant to be a United States fisherman
and the debtor to have: (1) acquired fish or fish produce from a fisherman through sale or conversion;
and (2) engaged in operating a fish produce storage or processing facility. 11 U.S.C. § 507(a)(6)(B). A
properly filed claim is prima facie evidence of the validity and the amount of the claim. 	F.R.B.P
3001(f). Accordingly, Homer Seafood must establish its compliance with 11 U.S.C. § 507(a)(6)(B) by
a preponderance of the evidence.
The Bankruptcy Code does not define “United States fisherman.” The Bankruptcy Code does
however define “commercial fishing operation” as “the catching or harvesting of fish, shrimp, lobsters,
urchins, seaweed, shellfish, or other aquatic species or products of such species.” 11 U.S.C. § 101
(7A)(A).
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The Court finds Homer Seafood was engaged as a United States fisherman at the time it sold
the flounder to the Debtors. Although, Homer Seafood set the trawlers up as separate corporations,
Homer Seafood had 100% ownership of the separate corporations, the trawlers and the captains on the
trawlers.
Now the Court must determine whether the Debtors (1) acquired fish or fish produce from a
fisherman through sale or conversion; and (2) engaged in operating a fish produce storage or processing
facility. 11 U.S.C. § 507(a)(6)(B). The Debtors satisfy the first element. It is clear the Debtors acquired
fish from a fisherman through sale. The more difficult question is whether the Debtors engaged in
operating a fish produce storage or processing facility.
The Court finds that the Debtors were not engaged in operating a fish produce storage or
processing facility at the time the flounder were sold to the Debtors. No evidence was presented that
the Debtors were engaged in operating a fish produce storage facility. Ms. Willis testified that when the
Debtors bought the fish from Homer Seafood, the fish were already packed on ice in styrofoam crates.
The Debtors would then transport the fish back to their warehouse where they would load the boxes
on a different truck to deliver to customers. Mr. Voliva testified that because they were wholesalers and
wanted to keep the fish as fresh as possible, transport was accomplished very quickly.
As to whether the Debtors were engaged in operating a fish processing facility, the evidence
shows that during the time period when the Debtors purchased fish from Homer Seafood, the Debtors
purchased the fish and picked the fish up in crates provided by Homer Seafood. The Debtors then
transported the fish back to the warehouses to load the fish onto different delivery trucks depending on
the customer’s locations. Mr. Voliva testified that he would sometimes add ice to the crate prior to
shipping.
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The Bankruptcy Code does not provide a definition of “processing.” Process is defined in
Webster’s Online Dictionary as “to subject to or handle through an established usually routine set of
procedures.” Merriam-Webster Online Dictionary http://www.m-w.com (last visited July 11, 2012).
Black’s Law Dictionary defines “process” as “a series of actions, motions or occurrences;
progressive act or transaction; continuous operation; method; mode or operations, whereby a result or
effect is produced; normal or actual course or procedure; regular proceeding, . . . . Process is mode,
method or operation whereby a result is produced; and means to prepare for market or to convert into
marketable form.” Wetterau, Inc. v. Dir. of Revenue, 843 S.W.2d 363, 369 (1992) (citing Blacks’s Law
Dictionary, 1205 (6 th ed.1990)).
The Food and Drug Administration in 21 CFR § 123.3(k)(1), defines processing with respect
to fish or fishery products as:
(k)(1) handling, storing, preparing, heading, eviscerating, shucking, freezing,
changing into different market forms, manufacturing, preserving, packing, labeling,
dockside unloading, or holding.
(2) The regulations in this part do not apply to:
(i) Harvesting or transporting fish or fishery products, without otherwise engaging in
processing.
(ii) Practices such as heading, eviscerating, or freezing intended solely to prepare
fish for holding on board a harvest vessel.
(iii) The operation of a retail establishment.
21 CFR § 123.3 (k)(1).
The Court finds that during the period when Carroll’s Seafood was selling fish to buyers in
Japan, it was engaged in operating a fish processing facility. During that time period, Carroll’s Seafood
employed a process of actions, including laying out and separating all fish based on quality, packing
and icing the sushi quality fish, labeling the fish and then sending the fish to the airport to be flown to
buyers in Japan. These actions produced the end result of providing sushi quality fish to the buyers in
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Japan. However, during the time of purchases from Homer Seafood, the Debtors were not engaged in
selling fish to buyers in Japan.
Statutory priorities under section 507 of the Bankruptcy Code are to be strictly and narrowly
construed. Travelers Prop. Cas. Corp. v. Birmingham-Nashville Express, Inc. (In re Birmingham-
Nashville Express, Inc.), 224 F.3d 511, 515 (6 th Cir. 2000).
The Food and Drug Administration’s definition is the most specific and most applicable in this
case. Transporting and reloading crates of flounder does not fall within the definition of “processing”
to qualify Carroll’s Seafood as a “processing” facility as required by 11 U.S.C. § 507(a)(6)(B). Further,
the Court finds that reloading and transporting crates of flounder does not meet the requirements of a
fish produce storage facility. Therefore, the Amended Objection to Proof of Claim #6-2, of Homer
Seafood, Inc. is SUSTAINED. The Claim of $5,087.50 will be treated as unsecured, or secured to the
extent of any value of collateral which may secure the claim. 2
SO ORDERED.
END OF DOCUMENT
2In their Schedule A, the Debtors listed three parcels of real property. On April 17, 2012, the
Court entered an order valuing the three parcels of real property as follows: (1) 538 Jones Road,
Vandemere, North Carolina 28587 with a value of $40,000.00; (2) Parcel 102-4-B consisting of
eighty-four (84) acres with a value of $50,000.00; and (3) 540 Jones Road, Vandemere, North
Carolina 28587 with a value of $100,000.00.
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