Opinion
Civil Action No. SA-98-CA-0183 HG.
March 31, 1998
MEMORANDUM AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
Before the Court is Plaintiff R.C.F. Produce Inc.'s request for preliminary injunctive relief. I have jurisdiction to enter this Memorandum and Recommendation under 28 U.S.C. § 636(b) and the District Court's Order referring all pretrial matters in this proceeding to me for disposition by order or to aid in their disposition by recommendation where my authority as a Magistrate Judge is statutorily constrained.
Docket Entry No. 1.
Background
Plaintiff, R.C.F. Produce, Inc., seeks preliminary injunctive relief against Defendants Cesar's's Produce, Inc. (Cesar's), C.S. Perez, and Alfonso Cesar (Alfonso) to preserve its rights in a trust created under the Perishable Agricultural Commodities Act (PACA). R.C.F., a seller of wholesale quantities of produce, sold fresh produce to Cesar's in four transactions on December 8 and December 19, 1997, and January 6 and January 14, 1998, totaling $37,239.14. Cesar's failed to pay R.C.F., and according to R.C.F., Cesar's and its principals, Perez and Alfonso, have dissipated PACA trust assets held for R.C.F.'s benefit.
On March 6, 1998, R.C.F. filed this lawsuit seeking enforcement of the PACA trust against all three Defendants. R.C.F. also asserts claims against Cesar's for violations of PACA and breach of contract, and alleges that Alfonso and Perez dissipated PACA trust assets and breached their fiduciary duties. The District Court granted R.C.F.'s request for a temporary restraining order on March 6, 1998, and by separate order referred the case to me for a hearing on the request for preliminary injunctive relief, as well as all pretrial matters. I set a hearing for March 17, 1998, but because of difficulties in locating Defendants, R.C.F. was unable to give them sufficient notice of the hearing by that date. Accordingly, I rescheduled the hearing for March 23, 1998. By that time, R.C.F. had successfully served Perez and Cesar's, but had been unable to locate Alfonso, who apparently is a Mexican national living in Mexico.
Docket Entry Nos. 5 and 6.
R.C.F. submitted an affidavit stating that Cesar's registered agent had been served on March 19, 1998, but as of the date of the Memorandum and Recommendation, no return of service has been filed. See Docket Entry No. 10, Exhibit B.
At the hearing, only R.C.F. and Perez appeared, and the primary area of contention was whether Perez can be held individually liable under PACA. After reviewing the evidence, the arguments of counsel, and the relevant case law, it appears that preliminary injunctive relief is inappropriate as to all Defendants, however, because R.C.F. has failed to demonstrate a substantial threat of irreparable harm if an injunction is not granted. Accordingly, I recommend that the District Court deny R.C.F.'s request for preliminary injunctive relief.
Discussion
Under PACA, a dealer, broker, or commission merchant of perishable agricultural commodities must hold all proceeds from the sale of such commodities in trust for the unpaid suppliers of those commodities. The unpaid supplier will be entitled to the benefit of the trust only if it provides written notice of its intent to preserve the benefits of the trust to the dealer, broker, or commission merchant who sold the commodities. Furthermore, the notice of intent must be filed with the Secretary of Agriculture. Assuming proper notice, PACA provides that "[t]he several district courts of the United States are vested with jurisdiction specifically to entertain (i) actions by trust beneficiaries to enforce payment from the trust, and (ii) actions by the Secretary [of Agriculture] to prevent and restrain dissipation of the trust."
Id .
U.S.C. § 499e(c)(4).
It is undisputed that R.C.F. has not been paid for its shipments to Cesar's in December, 1997, and January, 1998, and R.C.F. has presented proof that it properly perfected its interests as a PACA trust fund beneficiary. In support of its request for a preliminary injunction, R.C.F. further asserts that Defendants are dissipating trust assets, and unless injunctive relief is granted, R.C.F. will suffer irreparable harm.
Under well-settled Fifth Circuit precedent, a preliminary injunction is an extraordinary remedy that should not be granted unless the movant demonstrates by a clear showing: (1) a substantial likelihood of success on the merits; (2) a substantial threat of irreparable harm if the injunction is not granted; (3) that the threatened injury outweighs any harm that may result from the injunction to the non-movant; and (4) that the injunction will not undermine the public interest. Injury is generally not irreparable if compensatory relief would be adequate, and a plaintiff cannot meet its burden to establish entitlement to a preliminary injunction unless it is under a substantial threat of harm which cannot be undone through monetary remedies. In the context of a case under PACA, the weight of authority requires the moving party to show actual dissipation or the threat of dissipation, or financial difficulties of the defendant, in order to demonstrate irreparable harm and obtain injunctive relief.
Valley v. Rapides Parish School Board, 118 F.3d 1047, 1051 (5th Cir. 1997).
DFW Metro Line Services v. Southwestern Bell Telephone Co ., 901 F.2d 1267, 1269 (5th Cir. 1990), cert. denied, 498 U.S. 985 (1990); Spiegel v. City of Houston, 636 F.2d 997, 1001 (5th Cir. 1981).
Frio Ice, S.A. v. Sunfruit, Inc ., 918 F.2d 154, 159 (11th Cir. 1990); JSG Trading Corp. v. Tray-Wrap, Inc ., 917 F.2d 75, 79-80 (2nd Cir. 1990); Driscoll Potatoes, Inc. v. N.A. Produce Co., Inc ., 765 F. Supp. 174, 180 (D.N.J. 1991) (where there is no indication that defendants are either in bankruptcy or have insufficient assets to satisfy their obligations, no irreparable injury shown); Gullo Produce Co., Inc. v. A.C. Jordan Produce Co., Inc ., 751 F. Supp. 64, 66 (W.D.Pa. 1990) (court found defendant insolvent and if injunctive relief not granted, plaintiffs would not receive assets from trust imposed in their favor). But see, Continental Fruit Co. v. Thomas J. Gatziolis Co., Inc ., 774 F. Supp. 449, 453 (N.D.Ill. 1991) (suggesting that only showing required is a violation of PACA).
R.C.F. alleges a clear threat of dissipation because: (1) Cesar's's failed to acknowledge the absolute priority of trust creditors; (2) the principals involved with Cesar's are trying to defraud its creditors by opening up another business in the same location; (3) Cesar's and its principals transferred Cesar's assets to the new corporation; (4) Perez claimed that he and everyone else at Cesar's had been fired when in fact he along with all of Cesar's's principals were doing business as a new corporation in an attempt to defraud creditors; (5) Cesar's has four pending violations of PACA trust provisions; and (6) there is a prospect of other secured creditors pressuring the Defendants for payment.
Docket Entry No. 3.
With the exception of the other PACA claims, however, R.C.F. has presented no evidence to substantiate these claims. Rather, contrary to R.C.F.'s contention, Perez testified at the hearing that he resigned from Cesar's because he felt he was losing control, and disagreed with Alfonso on certain business decisions. While there is some indication that as of February 26, 1998, Cesar's had four informal PACA complaints against it, there is no proof of the amount of money owed to PACA creditors or whether the complaints are still pending. Furthermore, although there is some indication that Cesar's no longer conducts business, there is no proof that it has insufficient assets to satisfy R.C.F.'s claim, that it has not continued to collect accounts receivable, or that other creditors are "pressuring" Cesar's for payment. While R.C.F. claims that Alfonso withdrew approximately $180,000 from Cesar's bank account, it attempts to prove this assertion by a hearsay statement from a former Cesar's employee. Indeed, the only evidence presented regarding Cesar's financial condition was Perez' testimony that when he resigned on February 16, 1998, there was a balance in Cesar's bank account of approximately $40,000, more than enough to pay R.C.F. for the December and January shipments. Without more, R.C.F. has failed to show a substantial threat of irreparable injury, and the District Court would be justified in denying injunctive relief.
There was also testimony from Perez which suggested that Cesar's had assets in the form of real property. Such assets might also be available to satisfy PACA creditors.
Recommendation
For the reasons discussed above, I recommend that the District Court DENY R.C.F.'s request for preliminary injunctive relief.
Instructions For Service and Notice of Right To Appeal/Object
The United States District Clerk shall serve a copy of this Memorandum and Recommendation on all parties either (1) by certified mail, return receipt requested, or (2) by facsimile if authorization to do so is on file with the Clerk. The parties have agreed that any party who desires to object to this report must file written objections to the Memorandum and Recommendation with the Clerk of this Court, and serve the Magistrate Judge and all parties, on or before April 6, 1998. A party filing objections must specifically identify those findings or recommendations to which objections are being made. The District Court need not consider frivolous, conclusive, or general objections. A party's failure to file written objections to the proposed factual findings, legal conclusions, and recommendations contained in this report shall bar the party from a de novo determination by the District Court. Additionally, any failure to file written objections to the proposed findings, conclusions, and recommendations contained in this report on or before April 6, 1998, shall bar the aggrieved party from appealing the factual findings and legal conclusions that are accepted or adopted by the District Court, except on grounds of plain error.
Battle v. U.S. Parole Comm'n, 834 F.2d 419, 421 (5th Cir. 1987).
Thomas v. Arn, 474 U.S. 140, 150-55 (1985); United States v. Raddatz, 447 U.S. 667, 673-76 (1980); 28 U.S.C. § 636(b)(1).
Douglass v. United Serv. Auto. Ass'n, 79 F.3d 1415 (5th Cir. 1996)