Free Response to Order to Show Cause - 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 REY & REY PRODUCE, INC. and MANUEL REYNOSO, Defendants. v. SAMMY'S PRODUCE, INC., Plaintiff, ) Civil Action, No.: 08 CV 0930 L WMc ) ) RESPONSE TO ORDER TO SHOW CAUSE ) ) ) ) ) ) ) ) ) )

The court has ordered plaintiff's counsel to show cause why sanctions should not be imposed on him for allegedly misleading the court on whether the Temporary Restraining Order in Chiquita Fresh v. Sammy's Produce, Case. No. 08-CV00714, was made without notice. Due to the way that the client notified counsel of that matter, counsel was unaware until now that the TRO application was actually served prior to the Order being signed. See Declarations of Darin Pines and Bryan W. Pease. As it turns out, the client was served at 2:35pm on April 22, 2008 with the TRO application, with no other notice given or attempted, and the Order was signed less than one hour later, at 3:30pm. See Pease Dec. ¶4; See also Doc. 5, attached as Exhibit A. Counsel believed that the service packet he received from the client on May 1, 2008 was the first set of documents the client received and included the signed Order. It is unclear why the plaintiff in Chiquita 1
Sammy's Produce, Inc. v. Rey & Rey Produce, Inc., et al. Declaration of Bryan W. Pease

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served all of the documents again with the Order underneath instead of just the Order. The certificate of service eventually filed confirms that all of these documents were served on April 28. See Doc. 12, attached as Exhibit B. The court has noted that Doc. 3-4 in Chiquita indicates that service took place on April 21, 2008, when the application was filed. However, that proof only states that service was caused to be made by hiring a professional process server. Service was not actually effected until April 22, less than an hour before the Order was signed. There is also no declaration indicating that plaintiff in that case attempted to notify the defendant by any other means, such as a phone call or fax, that a TRO application was being made. The application was effectively made without notice, and counsel was certainly unaware that there had been even minimal notice. Given that counsel has not mislead this court, counsel respectfully requests that the show cause hearing be taken off calendar and that the TRO application previously filed be considered on its own merits, and notice be ordered if the court believes notice is appropriate.

Dated: May 29, 2008

By: /s/ Bryan W. Pease____________ Bryan W. Pease Attorney for Plaintiff SAMMY'S PRODUCE, INC

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Sammy's Produce, Inc. v. Rey & Rey Produce, Inc., et al. Declaration of Bryan W. Pease

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Exhibit A

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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA CHIQUITA FRESH, N.A., L.L.C. : : : : : : : :

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Plaintiff v. SAMMY'S PRODUCE, INC., et al Defendants

Civil Action No: 08-CV714 JLS (POR) ORDER: GRANTING PLAINTIFF'S MOTION FOR A TEMPORARY RESTRAINING ORDER

This matter is before the Court upon Plaintiff's Motion for A Temporary Restraining Order ("TRO") pursuant to Rule 65 of the Federal Rules of Civil Procedure. 1 [Doc. No. 3.] For the following reasons, the Court GRANTS Plaintiff's motion for a TRO.

BACKGROUND Chiquita Fresh, N.A., L.L.C. ("Plaintiff") is a dealer in perishable agricultural commodities, i.e., produce, and is licensed under the provisions of the Perishable Agricultural Commodities Act ("PACA"), 7 U.S.C. §499a et seq. Sammy's Produce, Inc. ("Sammy's Produce"), purchases wholesale quantities of produce. According to Plaintiff, between

February 14, 2008 and March 12, 2008, Plaintiff sold and delivered to Defendants, in interstate
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commerce, wholesale amounts of produce in the amount of $73,545.90. Plaintiff contends it
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Plaintiff has also filed a motion for a preliminary injunction. [Doc. No. 4.]

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has not been paid any monies by Defendants for the $73,545.90 worth of commodities that it sold. Plaintiff asserts that Defendants have repeatedly advised that they are unable to pay the $73,545.90 owed because they have severe cash flow problems. Plaintiff argues that

Defendants are failing to comply with their statutory duties under PACA to hold the undisputed amount of $73,545.90 in trust for the benefit of Plaintiff and to pay said sum to Plaintiff. Accordingly, Plaintiff is requesting that this Court issue an immediate injunction requiring non-

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dissipation of the trust assets.
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LEGAL STANDARD
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Under Fed. R. Civ. P. 65(b), plaintiffs must make a showing that immediate and irreparable injury, loss, or damage will result if the Court does not grant their motion for a TRO. TROs are governed by the same standard applicable to preliminary injunctions. See Cal. Indep. Sys. Operator Corp. v. Reliant Energy Servs., Inc., 181 F. Supp. 2d 1111, 1126 (E.D. Cal. 2001). The Ninth Circuit has set forth two separate sets of criteria for determining whether to grant preliminary injunctive relief: Under the traditional test, a plaintiff must show: (1) a strong likelihood of success on the merits, (2) the possibility of irreparable injury to plaintiff if preliminary relief is not granted, (3) a balance of hardships favoring the plaintiff, and (4) advancement of the public interest (in certain cases). The alternative test requires that a plaintiff demonstrate either a combination of probable success on the merits and the possibility of irreparable injury or that serious questions are raised and the balance of hardships tips sharply in his favor. These two formulations represent two points on a sliding scale in which the required degree of irreparable harm increases as the probability of success decreases. They are not separate tests but rather outer reaches of a single continuum Ranchers Cattlemen Action Legal Fund v. U.S. Dep't. of Agric., 415 F.3d 1078, 1092-93 (9th Cir. 2005) (internal quotations and citations omitted); see also Preminger v. Principi, 422 F.3d 815, 826 (9th Cir. 2005). 2

Plaintiff argues that it has satisfied the traditional test.

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GOVERNING LAW 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

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fair play . . . and aid to [agricultural] traders in enforcing their contracts." 49 Fed. Reg at 45737. In 1984, 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

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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

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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

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manner that such assets are freely available to satisfy outstanding obligations to sellers of
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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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ANALYSIS I. Plaintiff Satisfies the Traditional Test for a TRO A. Plaintiff Has a Strong Likelihood of Success on the Merits

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Plaintiff appears entitled to enforce the PACA trust provisions and regulations to secure
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its trust claim for $73,545. First, Plaintiff is a supplier or seller of wholesale quantities of
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produce. Second, Plaintiff sold to Defendants, in interstate commerce, wholesale quantities of
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produce in the aggregate amount of $73,545.90, which is allegedly past due and unpaid. Third, Plaintiff seems to have properly preserved its status as a trust creditor of Defendants under PACA by sending detailed invoices for the produce to the Defendant corporation. Fourth, Defendants have apparently advised Plaintiff that they are unable to pay.

B.

Plaintiff Faces the Possibility of Irreparable Injury if the TRO is not Granted

In the absence of preliminary relief, there could be no assets in the statutory trust. Loss of such assets would be irreparable because Plaintiff would 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. See 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., 222 F.3d at 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).

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C.

Issuing a TRO Will Not Cause Defendants Substantial Harm and Will Be in the Public Interest

By enjoining defendants from dissipating trust assets, Defendants would only be required to fulfill the duties imposed by statute. Tanimura & Antle, Inc., 222 F.3d at 140. Further, PACA specifically declares that the congressional intent behind its passage is to protect the public interest and to remedy the burden on dealers, such as Plaintiff, by receivers who do not pay for produce. Id.; 7 U.S.C. §499e(c)(1). 3

CONCLUSION Based on the foregoing reasons and consideration of Plaintiff's motion, the Court finds that Plaintiff risks immediate irreparable injury in the form of the loss of trust assets.

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Therefore, a TRO should be issued without notice to the Defendants.
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The Court hereby ORDERS:
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(1)
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Defendants, their customers, agents, officers, subsidiaries, assigns, banking

institutions and related entities, shall not alienate, dissipate, pay over or assign any assets of Sammy's Produce or its subsidiaries or related companies except for payment to Plaintiff until further order of this Court or until Defendants pay Plaintiff the sum of $73,545.90 by cashiers check or certified check at which time the Order is dissolved. (2) In the event Defendants fail to pay Plaintiff the sum referenced in the previous

paragraph by cashiers or certified check within five (5) business days of service of this Order, then the Defendants shall file with this Court, and provide a copy to Plaintiff's counsel, an accounting which identifies the assets and liabilities and each account receivable of Sammy's Produce signed under penalty of perjury. Defendants shall also supply to Plaintiff's attorney, within ten (10) days
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In addition, the Court recognizes various decisions that support granting a TRO under similar circumstances. Tanimura & Antle, 222 F.3d at 140; Frio Ice, S.A., 918 F.2d at 159; 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); Eagle Fruit Traders, LLC v. Fla. Fresh Int'l, Inc., 2007 U.S. Dist. LEXIS 96798 (S.D. Fla. 2007); W. Onion Sales, Inc. v. KIDCO Farms Processing, Inc., 2006 U.S. Dist. LEXIS 93216 (D.N.D. 2006).

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of the date of the Order, any and all documents in connection with the assets and liabilities of Sammy's Produce and its related and subsidiary companies, including, but not limited to, the most recent balance sheets, profit/loss statements, accounts receivable reports, accounts payable reports, accounts paid records and income tax returns. (3) Bond shall be waived in view of the fact that Defendants now hold the aggregate

amount of $73,545.90 of Plaintiff's assets.
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(4)
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This Temporary Restraining Order is entered this 22nd day of April, 2008 at 3:30

p.m. A hearing on Plaintiff's Motion for Preliminary Injunction is set for May 9, 2008 at 10:30 a.m. in Courtroom 6 of the Edward J. Schwartz United States District Courthouse, 940 Front St.,
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San Diego, CA 92101. (5) Order. (6) Defendants' opposition to Plaintiff's motion for a preliminary injunction, if any, The Plaintiff shall forthwith serve Defendants and their counsel with a copy of this

shall be filed no later than April 30, 2008 with a courtesy copy to be delivered to chambers on that date. Plaintiff's reply, if any, shall be filed no later than May 5, 2008. IT IS SO ORDERED.

Dated: April 22, 2008

____________________________ Honorable Janis. L. Sammartino United States District Court

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Exhibit B

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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 ) ) DECLARATION OF DARIN PINES ) ) ) ) ) ) ) ) ) )

Darin Pines, being duly sworn, deposes and says: 1. I am the Chief Operating Officer of U.S. Farms, Inc. Sammy's Produce, Inc. is a

wholly owned subsidiary of U.S. Farms, Inc. 2. On information or belief, on or about April 22, 2008, Sylvia Snyder, the

receptionist of U.S. Farms, received service of the summons, complaint and application for a temporary restraining order in Chiquita Fresh v. Sammy's Produce, Case. No. 08-CV00714 at the main U.S. Farms office, 1635 Rosecrans St., San Diego, CA 92106. 3. Yan Skwara, the Chief Executive Officer of U.S. Farms, was out of town that

week, so Ms. Snyder mailed me the documents at my office in Fallbrook, CA. The summons on top stated that we had 20 days to respond. I called our attorney, Bryan Pease, after receiving the documents later in the week. I did not look through all of the documents to see there was an 1
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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 ) ) DECLARATION OF BRYAN W. PEASE ) ) ) ) ) ) ) ) ) )

Bryan W. Pease, being duly sworn, deposes and says: 1. I am the attorney for the plaintiff SAMMY'S PRODUCE, INC. in the above

entitled action and was also the attorney for SAMMY'S PRODUCE, INC. in Chiquita Fresh v. Sammy's Produce, Case. No. 08-CV00714. 2. On May 1, 2008, I received an overnight FedEx delivery from Yan Skwara, CEO

of U.S. Farms, Inc. and its wholly owned subsidiary, SAMMY'S PRODUCE, INC. A true and correct copy of the shipment label is attached hereto as Exhibit A. The delivery contained the summons, complaint, application for temporary restraining order with supporting documents, and signed Order. I believed these to be the documents that Darin Pines had received the previous week and discussed with me on the phone. It was not until today that I learned these were a separate set of documents Mr. Skwara received after the Order was signed, and Mr. Pines 1
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had received those documents minus the Order a day or two after it was signed, but had been constructively served with them less than an hour before it was signed. 3. I immediately advised Mr. Skwara and Mr. Pines on May 1 that the documents

were not just a lawsuit that required an answer within 20 days, but also a signed Temporary Restraining Order. Because I believed the signed Order had been served the previous week with the other documents just after it was signed, I believed the five days to comply was already up and called both the court clerk and plaintiff's counsel to advise them of the situation. We arranged a settlement shortly thereafter. 4. On May 29, 2008, I spoke to Kevin at Diversified Legal Services, Inc., the

process service company that served the documents on behalf of Chiquita. Kevin faxed me a list of the documents that were served on April 22, 2008 and stated that service took place at 2:35pm. The list is attached hereto as Exhibit B. 5. I have never intentionally misled this or any court on any matter.

I declare under penalty of perjury that the foregoing is true and correct to my knowledge, except those matters that are alleged on information or belief, and as to those matters, I believe them to be true.

Executed on May 29, 2008

By:

/s/ Bryan W. Pease__________ Bryan W. Pease

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Exhibit A

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Exhibit B

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