Free Motion for TRO - District Court of California - California

Case 3:08-cv-00930-L-WMC

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BRYAN W. PEASE (SB# 239139) 302 Washington St. #404 San Diego, CA 92103 Telephone: (619) 723-0369 Facsimile: (619) 923-1001 email: [email protected] Attorney for Plaintiff

5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE SOUTHERN DISTRICT OF CALIFORNIA 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 1
Sammy's Produce, Inc. v. Rey & Rey Produce, Inc., et al. 08 CV 0930 L WMc Ex Parte Application

SAMMY'S PRODUCE, INC., Plaintiff, v. REY & REY PRODUCE, INC., and MANUEL REYNOSO, Defendants.

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Civil Action, No.: 08 CV 0930 L WMc EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER WITH NOTICE

Upon the declaration of Yan Skwara, the President/CEO of Plaintiff Sammy's Produce, Inc., and the accompanying memorandum of points and authorities in support, plaintiff hereby moves the Court to issue a temporary restraining order under Rule 65 of the Federal Rules of Civil Procedure enforcing the statutory trust pursuant to Section 5(c) of the Perishable Agriculture Commodities Act, 7. U.S.C. § 499e(c), by restraining the transfer of any and all assets of Rey & Rey Produce, Inc.

Dated: June 2, 2008

By: /s/ Bryan W. Pease_______________ Bryan W. Pease Attorney for Plaintiff

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BRYAN W. PEASE (SB# 239139) 302 Washington St. #404 San Diego, CA 92103 Telephone: (619) 723-0369 Facsimile: (619) 923-1001 email: [email protected] Attorney for Plaintiff

5 6 7 8 UNITED STATES DISTRICT COURT 9 FOR THE SOUTHERN DISTRICT OF CALIFORNIA 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 REY & REY PRODUCE, INC., and MANUEL REYNOSO, Defendants. v. SAMMY'S PRODUCE, INC., Plaintiff, ) ) ) ) ) ) ) ) ) ) ) ) ) Civil Action, No.: 08 CV 0930 L WMc MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF APPLICATION FOR TEMPORARY RESTRAINING ORDER WITH NOTICE

Sammy's Produce, Inc. ("Plaintiff") submits this Memorandum in Support of its Application for Temporary Restraining Order under Rule 65 of the Federal Rules of Civil Procedure enforcing the statutory trust pursuant Section 5(c) of the Perishable Agriculture Commodities Act ("PACA"), 7 U.S.C. §499e(c), by restraining the transfer of any and all PACA trust assets of Sammy's Produce, Inc. ("Sammy's Produce") until there is payment to plaintiff of $95,064.00, pending the entry of a Preliminary Injunction Order. INTRODUCTION Plaintiff is engaged in the business of selling wholesale quantities of perishable agricultural commodities (hereafter "produce") in interstate commerce. Defendant, Rey & Rey Produce, Inc. ("Rey & Rey"), is a California corporation located in Los Angeles, California. Defendant Rey & Rey purchased wholesale quantities of produce, and is and was at all times Sammy's Produce, Inc. 1
v. Rey & Rey Produce, Inc., et al. 08 CV 0930 L WMc Points & Authorities for TRO

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pertinent herein, a dealer of produce subject to and/or licensed under the Perishable Agricultural Commodities Act, 7 U.S.C. §499a, et seq., ("PACA"). Plaintiff seeks enforcement of the statutory trust established under the PACA, 7 U.S.C. §499e(c), and the regulations issued pursuant thereto, 7 CFR Part 46, 49 Fed. Reg. 45735 (Nov. 20, 1984) (the "PACA regulations"). The Court's jurisdiction is invoked pursuant to 7 U.S.C. §499e(c)(5)(i). THE PACA TRUST The PACA was enacted in 1930 to "suppress unfair and fraudulent practices in the marketing of fruits and vegetables in interstate and foreign commerce" and "provides a code of fair play . . . and aid to [agricultural] traders in enforcing their contracts." 49 Fed. Reg at 45737. In 1984, the PACA was amended to assure that suppliers of produce are paid by imposing a statutory trust on all produce-related assets, such as the produce itself or other products derived therefrom, as well as any receivables or proceeds from the sale thereof, held by agricultural merchants, dealers and brokers. 7 U.S.C. §499e(c)(2). Tanimura & Antle, Inc. v. Packed Fresh Produce, Inc., 222 F.3d 132 (3rd Cir. 2000); Frio Ice, S.A. v. Sunfruit, Inc., 918 F.2d 154 (11th Cir. 1990). The trust must be maintained for the benefit of the unpaid suppliers, sellers or agents who provided the commodities until full payment has been made. Id. The trust provision thus offers sellers of produce, "a self-help tool that will enable them to protect themselves against the abnormal risk of losses resulting from slow-pay and no-pay practices by buyers or receivers of fruits and vegetables." 49 Fed. Reg. at 45737. Failure to maintain the trust and make full payment promptly to the trust beneficiary is unlawful. 7 U.S.C. §499b(4). Produce dealers "are required to maintain trust assets in a manner that such assets are freely available to satisfy outstanding obligations to sellers of perishable agricultural commodities[,]" and any act or omission inconsistent with this responsibility, including dissipation of trust assets, is proscribed. 7 CFR §46.46(e)(1). Dissipation of trust assets, defined as the diversion of trust assets or the impairment of a seller's right to obtain payment (7 CFR §46.46(b)(2)), is forbidden. 7 CFR §46.46(e)(i).

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BACKGROUND OF THIS ACTION AND THE INSTANT MOTION Plaintiff is a wholesaler of produce with a principal place of business in California, which sold and delivered wholesale quantities of produce to defendants in the unpaid amount of $95,064.00, all of which qualifies for trust protection. There is no dispute that Plaintiff is owed $95,064.00 in trust assets from Defendants, and Defendants have provided several checks to Plaintiff for the trust payments that were dishonored by the bank due to insufficient funds. Plaintiff is a beneficiary of the statutory trust which defendants are required to maintain until full payment is made to plaintiff for the produce. Defendants are past due in paying plaintiff for the produce. Defendants' failure, refusal and inability to pay Plaintiff, show that Defendants are failing to maintain the trust required by statute, and the trust assets will continue to be dissipated unless the relief requested is granted. THE STANDARD FOR GRANTING RELIEF The standard for granting injunctive relief in the Ninth Circuit requires the moving party to show: (1) a strong likelihood of success on the merits; (2) irreparable harm if the relief is not granted; (3) that the threatened injury to the movant outweighs whatever damage the proposed injunction may cause to the opposing party; and (4) the issuance of the injunction will not be adverse to the public interest. Regents of University of California v. ABC, Inc., 747 F.2d 511, 515 (9th Cir. 1984); Los Angeles Memorial Coliseum Comm'n v. National Football League, 634 F.2d 1197, 1200 (9th Cir. 1980). The facts in this case show that the plaintiff is entitled to the requested relief. 1. Plaintiff Is A Trust Beneficiary Entitled To Enforce The PACA Trust -- The Likelihood That Plaintiff Will Prevail On The Merits Is Great

Plaintiff's entitlement to the relief requested so as to enable it to enforce the trust provisions of PACA and the PACA regulations to secure its trust claim for $95,064.00 is clear. First, Plaintiff is a supplier or seller of wholesale quantities of produce. Second, Plaintiff sold to Defendants, in interstate commerce, wholesale quantities of produce in the aggregate amount of 3
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$95,064.00, which is past due and unpaid. Third, Plaintiff properly preserved its status as a trust creditor of Defendants under PACA by sending invoices for the produce to the Defendant corporation which contained the language as required by 7 U.S.C. §499e(c)(4). Fourth, Defendants are dissipating trust assets in that they have failed and refused to pay plaintiff for the produce supplied by Plaintiff in accordance with the trust provisions of the PACA and have advised Plaintiff that they are unable to pay for the produce. 2. Plaintiff Would Be Irreparably Injured Were Defendants Not Ordered To Immediately Comply With The PACA Trust Act.

In the absence of preliminary relief, there will be no assets in the statutory trust. Loss of such assets would be irreparable because Plaintiff will not be able to recover the trust assets once they are dissipated, and Plaintiff would be forever excluded as a beneficiary of the statutory trust. H.R. Rep. No. 543, 98th Cong. 2d Sess 4 (1983), reprinted in 1984 U.S. Code Cong. & Admin. News, 405, 411; Tanimura & Antle, Inc. v. Packed Fresh, Inc., supra, p. 140; J. R. Brooks & Son, Inc. v. Norman's Country Mart, Inc., 98 B.R. 47 (Bkrtcy. N.D. Fla. 1989); Continental Fruit v. Thomas J. Gatziolis & Co., 774 F.Supp. 449 (N.D. Ill. 1991); Gullo Produce Co., Inc. v. Jordan Produce Co., Inc., 751 F.Supp. 64 (W.D. Pa. 1990). 3. Possible Harm To Defendants Is Slight or Nonexistent.

By enjoining Defendants from dissipating trust assets, Defendants would only be required to fulfill the duties imposed by statute. Requiring fulfillment of such a duty cannot be harmful as a matter of law. Tanimura & Antle, Inc. v. Packed Fresh, Inc., supra, p. 140. 4. The Public Interest Favors Granting An Injunction.

The trust provision specifically declares that the congressional intent behind its passage is to protect the public interest and to remedy the burden on Sammy's Produce, Inc. by receivers who do not pay for produce. Tanimura & Antle, Inc. v. Packed Fresh, Inc., supra, p. 140. 7 U.S.C. §499e(c)(1). Therefore, the public interest favors granting an injunction.

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5.

Caselaw Supports Plaintiff's Entitlement To An Injunction.

Caselaw supports Plaintiff's entitlement to an immediate injunction requiring nondissipation of trust assets when the produce supplier is not paid. Tanimura & Antle, Inc. v. Packed Fresh, Inc., supra, p. 140 (irreparable injury established and injunction should issue upon a showing that the trust was depleted and payment was not readily forthcoming); Frio Ice, S.A. v. Sunfruit, Inc., supra, p. 159; ("Upon a showing that the trust is being dissipated or threatened with dissipation, a district court should require the PACA debtor to escrow its proceeds from produce sales, identify its receivables, and inventory its assets."); Dole Fresh Fruit Co. v. United Banana Co., 821 F.2d 106 (2d Cir. 1987); In re Richmond Produce Co., Inc., 112 B.R. 364, 367 (Bkrtcy. N.D. Cal. 1990). 6. There is no Tracing Requirement for the PACA Trust

The PACA statute does not require tracing and therefore trust assets are to be preserved as a non-segregated "floating trust." In addition, the statute recognizes that commingling is contemplated. If a dispute arises regarding the identification of trust assets, the debtor has the burden to establish what, if any, assets are not subject to the PACA Trust. See In re Fresh Approach, 51 B.R.412, 422 (Bankr. N.D. Texas 1985) ["Fresh Approach II"], a seminal judicial decision analyzing the impact of the statutory trust provisions. In accordance with legislative directives, the court in Fresh Approach II based its decision upon the Packers and Stockyards Act, 1921 [7 U.S.C. § 181, et seq.] (hereinafter "PSA"), and its subsequent line of cases, concluding that the trust created by the PACA was intended to be a "floating non-segregated statutory trust," to which claimants need not trace funds. See, In re Monterey House, 71 B.R. 244, 247 (Bankr. S.D. Texas 1986). Furthermore, the court in First State Bank v. Gotham Provision Co. (In re Gotham Provision Co.), 699 F.2d 1000, 1011 (5th Cir. 1982) (hereinafter "Gotham"), in holding that the PSA established a floating trust, stated: [W]here trust funds are commingled with funds not subject to the trust, a lien on the entire commingled fund exists for the benefit of the beneficiaries of the trust. 5
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The Gotham court further held that when commingling occurs, the only burden on the unpaid cash sellers is to prove the balance due to them and the existence of a floating pool of commingled inventories of livestock products, accounts receivable and proceeds derived from cash and credit sales. Id. The court in Gotham, however, clearly placed the burden on the bankruptcy trustee (and the lending institution) to show that receivables were not subject to the PACA trust. Id. at 1012. In re Hancock-Nelson Mercantile, Inc., 95 B.R. 982 (Bankr. N.D. Minn. 1989); In re W.L. Bradley Company, Inc., 75 B.R. 505 (E.D. Pa. 1987). In re Kornblum & Co., Inc., 81 F.3d 280 (2d Cir.N.Y. 1996) is particularly instructive because of its analysis of the issue of what property makes up the corpus of the PACA Trust. The Kornblum court rejected the debtor's contention that the only assets that are held in trust for a particular PACA beneficiary are the specific produce or proceeds supplied by that beneficiary. The court accepted the beneficiary's argument that the res of the PACA Trust is not so limited and that "a single PACA trust exists for the benefit of all of the sellers to a Produce Debtor, and continues in existence until all of the outstanding beneficiaries have been paid in full." The Kornblum court set forth a three-prong tested for analyzing whether specific property is part of the PACA Trust. In order to prove that the property is not part of the PACA Trust, the debtor has the burden to establish either that (1) no PACA trust existed when the specific property was purchased; (2) even though a PACA Trust existed at that time, the property was not purchased with trust assets; or (3) although a PACA Trust existed when the property was purchased and the property was purchased with trust assets, the debtor thereafter paid all unpaid sellers in full prioer to the transactions involving the creditors, thereby terminating the trust. Moreover, in In re Atlantic Tropical Market Corporation, 188 B.R. 139 (Bankr. S.D. Fla. 1990), the court held that the PACA trust fund is established upon the commencement of the purchaser's produce related business. The court held that any business assets purchased by one who is in the business of buying and selling produce will be presumed to have been purchased with PACA trust assets, and any such assets may thus be viewed as collateral until the PACA trust claim has been paid in full. See also, Sanzone-Palmisano Company v. M. Seamen Enterprises, Inc., 986 F.2d 1010 (6th Cir. 1993). 6
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Accordingly, the PACA beneficiary is not required to trace trust funds. To the extent any dispute arises regarding the trust assets, it is the Debtor who must prove which assets, if any, are not subject to the trust. In re Fresh Approach, supra. Defendants are required by federal statute to hold all perishable agricultural commodities, the inventories of food or other products derived from the perishable agricultural commodities and the receivables and proceeds from the sale of the perishable agricultural commodities in trust for the PACA beneficiaries. In the event these liquid and intangible assets are insufficient to fully satisfy Plaintiff's trust claims, Plaintiff may look to other assets of Defendants for security of its trust claims. Defendants herein have failed or otherwise refused to perform their statutory duties and Plaintiff is therefore entitled to injunctive relief, which will require Defendants to set aside sufficient assets to fully satisfy their statutory trust obligations and which will restrain Defendants from any dissipation of the assets required to be held in trust. 7. No Bond Should Be Required to Grant Preliminary Relief

No bond should be required as a condition of preliminary relief, as Defendants are currently in possession and control of $95,064.00 of Plaintiffs' trust assets. Federal Rule of Civl Procedure 65(c) speaks of requiring a bond "for payment of such costs and damages as may be incurred or suffered by any party who is found to have been wrongfully enjoined or restrained." However, the court has the discretion to dispense with the requirement of a bond completely under appropriate circumstances or to require a nominal bond. Sundor Brands, Inc. v. Borden, Inc., 653 F. Supp. 86, 93 (M.D. Fla. 1986). See also, California ex rel. Van De Kamp v. Tahoe Regional Planning Agency, 766 F.2d 1319, 1324-25, as amended 775 F.2d 998 (9th Cir. 1985); Wayne Chemical, Inc. v. Columbus Agency Serv. Corp., 567 F.2d 692, 701 (7th Cir. 1977). In the instant matter, the Restraining Order sought does no more than require Defendants to simply comply with the trust provisions of the PACA. As required under PACA, Defendants are to pay or to preserve sufficient assets to satisfy qualified PACA trust claims which they are already statutorily mandated to do.

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The monies are clearly not Defendants' property. Rather, Defendants merely hold them as trustee for Plaintiff. Accordingly, there is no potential harm to Defendants from an order compelling them to comply with the law and to set aside funds that are not Defendants' property. As such, no bond should be required. In none of the other reported cases under PACA trust provisions in which preliminary relief was ordered did the court require a bond. See, e.g., J.R. Brooks & Son, Inc. v. Norman's Country Mkt., Inc., supra, 98 B.R. at 50-51; In re W.L. Bradley Co., 75 B.R. 505, 513-14 (Bankr. E.D. Pa. 1987). In Chiquita Fresh, N.A., L.L.C. v. Sammy's Produce, Inc., Civil Action No: 08-CV714 JLS (POR), District Judge Janis L. Sammartino issued an order expressly holding that no bond was necessary. A true and correct copy of this ruling is attached hereto and incorporated by reference as Exhibit 1. Accordingly, Plaintiffs submit that the posting of a bond should not be a condition of obtaining a temporary restraining order or preliminary injunction compelling Defendants to comply with the trust provisions of the PACA and to set aside the trust funds in their possession. Alternatively, should this Court feel some bond is appropriate, no more than a nominal bond should be required. CONCLUSION The instant application by which plaintiff seeks an order directing Defendants to comply with PACA and enjoining them from taking any action inconsistent with the duty of trust maintenance imposed upon defendants by PACA, is designed to afford Plaintiff that which is necessary, in the way of preliminary judicial relief, if plaintiff is to be able to avail itself of its statutory trust rights. For the foregoing reasons, plaintiff respectfully submits that its Applications for Temporary Restraining Order and Preliminary Injunction should be granted.

Dated: June 2, 2008

By: /s/ Bryan W. Pease_______________ Bryan W. Pease Attorney for Plaintiff

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BRYAN W. PEASE (SB# 239139) 302 Washington St. #404 San Diego, CA 92103 Telephone: (619) 723-0369 Facsimile: (619) 923-1001 email: [email protected] Attorney for Plaintiff

5 6 7 UNITED STATES DISTRICT COURT 8 FOR THE SOUTHERN DISTRICT OF CALIFORNIA 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 REY & REY PRODUCE, INC. and MANUEL REYNOSO, Defendants. v. SAMMY'S PRODUCE, INC., Plaintiff, ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Civil Action, No.: 08 CV 0930 L WMc DECLARATION OF YAN SKWARA IN SUPPORT OF APPLICATION FOR TEMPORARY RESTRAINING ORDER WITHOUT NOTICE AND PRELIMINARY INJUNCTION

Yan Skwara, being duly sworn, deposes and says: 1. I am the President and CEO of Sammy's Produce, Inc. and make this declaration

in support of an application for emergency relief pursuant to Rule 65 of the Federal Rules of Civil Procedure. 2. I am personally familiar with all matters which are the subject of this proceeding

and the facts set forth in this declaration are within my personal knowledge. If called upon as a witness, I would and could competently testify to all facts stated in this declaration. 3. Sammy's Produce, Inc. is a corporation with a principal place of business in San

Diego, California, which sells wholesale quantities of perishable agricultural commodities (hereafter "produce"). Sammy's Produce is a produce dealer subject to and licensed under the 1
Sammy's Produce, Inc. v. Rey & Rey Produce, Inc., et al. Declaration of Yan Skwara

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Perishable Agricultural Commodities Act of 1930, as amended, 7 U.S.C. § 499a et seq. (hereafter "PACA"). 4. a. Defendant, Rey & Rey Produce, Inc., is a produce dealer as defined by 7

U.S.C. § 499a and operates subject to and is licensed under the PACA. b. Upon information or belief, Manuel Reynoso is and was responsible for

the day-to-day operations of Hierro's Market during the time in question and was in a position of control over the PACA trust assets belonging to Sammy's Produce. 5. The sales and accounts receivable records of Sammy's Produce, including

invoices and account statements, are made in the ordinary course of business and are made at or near the time of the occurrence of the event of which they are a record. These business records are made by me or under my direction and supervision by employees whose duty it is to prepare such documents. 6. Between October 12, 2007 and November 3, 2007 Sammy' s Produce sold and

delivered to defendants, in interstate commerce, various wholesale lots of produce worth $95,064.00, which remains unpaid. True and correct copies of the outstanding invoices are attached hereto as Exhibit 1 and are herein incorporated by reference. 7. 10. Defendants accepted the produce received from Sammy's Produce. Sammy's Produce preserved its interest in the PACA trust in the amount of

$95,064.00 by timely delivering invoices to defendants, which contained the language required under Section 5(c) of the PACA, 7 U.S.C. § 499ae(c). (See Exhibit 1 attached hereto). 11. Defendants are obligated to hold in trust all produce-related assets received from

the sale of produce in order to pay $95,064.00 to Sammy' s Produce. 12. Defendants have not disputed the debt in any way, and they have sent checks to

plaintiff that were returned by the bank for insufficient funds, in direct violation of the trust provisions of the PACA. True and correct copies of these returned checks are attached as Exhibit 2 and herein incorporated by reference. 13. Defendants' failure, refusal and inability to pay demonstrate that defendants are

failing to maintain sufficient assets in the statutory trust and are dissipating assets. 2
Sammy's Produce, Inc. v. Rey & Rey Produce, Inc., et al. Declaration of Yan Skwara

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