Opinion
00 Civ. 8051 (JSM)
October, 2000
Sherylee F. Bauer, Silverman, Collura Chernis, P.C., New York, NY, For plaintiff.
Mario L. Tiberi, H.P. Islandwide, Inc., Staten Island, NY, For defendants.
OPINION and ORDER
Presently before the court is the application of Wishnatzki Nathel, Inc. ("Plaintiff") for a temporary restraining order and preliminary injunction ("TRO") to prevent H.P. Island-Wide, Inc. and its principal, Mario L. Tiberi, (collectively "Defendants") from dissipating funds that are allegedly owed to Plaintiffs pursuant to a Perishable Agriculture Commodities Act ("PACA") trust. The TRO is granted pending argument on Plaintiff's application for a preliminary injunction, as Plaintiffs have properly demonstrated an imminent danger of dissipation. However, in light of the Supreme Court's recent decision in Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308, 119 S.Ct. 1961 (1999), the ability of a district court to grant equitable relief of this type merits comment.
The question arises in part because of the statute's jurisdictional provision:
The 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 to prevent and restrain dissipation of the trust.7 U.S.C. § 499e(c)(4). While at first blush, Plaintiffs might seem barred from applying for an injunction by the terms of the statute, courts have read this provision and the PACA legislative history as retaining a plaintiff's full arsenal of rights at common law. See, e.g., Tanimura Antle, Inc. v. Packed Fresh Produce, Inc., 222 F.3d 132, 138-39 (3d Cir. 2000); JSG Trading Corp. v. Tray-Wrap, Inc., 917 F.2d 75 (2d Cir. 1990); Frio Ice, S.A. v. Sunfruit, Inc., 918 F.2d 154, 157-58 (11th Cir. 1990). The inquiry into what those rights are dovetails with the analysis required under Grupo Mexicano.
In Grupo Mexicano, the Court held that district courts do not have the power to issue preliminary injunctions freezing a defendant's assets in order to secure a money judgment, because unsecured creditors had no such remedy at common law. See Grupa Mexicano, 527 U.S. at 329-33, 119 S.Ct. at 1973-75. In reaching its decision, the Court made a distinction between general, unsecured creditors and those possessing a lien or equitable interest in the property at issue. See id. at 324-26, 119 S.Ct. at 1971-72. To this end, the Court distinguished its prior decisions in Deckert v. Independence Shares Corporation, 311 U.S. 282, 61 S.Ct. 229 (1940), and United States v. First National City Bank, 379 U.S. 378, 85 S.Ct. 528 (1965). In Deckert, a preliminary injunction was appropriate because the ultimate relief sought was equitable in nature, see Deckert, 311 U.S. at 288-89, 61 S.Ct. at 233-34 (rescission of fraudulently induced contract and recovery of consideration paid), while in First National, the United States was seeking to enforce an equitable tax lien on the defendant's assets, see First National, 379 U.S. at 379-80, 85 S.Ct. at 529. Similarly, in De Beers Consolidated Mines, Ltd. v. United States, 325 U.S. 212, 65 S.Ct. 1130 (1945), the Court held that "[a] preliminary injunction is always appropriate to grant intermediate relief of the same character as that which may be granted finally." Id. at 220, 65 S.Ct. at 1134.
In keeping with the principles outlined in Deckert, De Beers, and First National, courts have held that where the particular funds sought to be frozen are also the funds at issue in the suit, a preliminary injunction is proper. See, e.g., Republic of Philippines v. Marcos, 806 F.2d 344, 356 (2d Cir. 1986); State of New York v. Panex Indus., Inc., 860 F. Supp. 977, 980-81 (W.D.N.Y. 1994). Indeed, courts since Grupo Mexicano have found that where plaintiffs seek both equitable and legal relief in relation to specific funds, a court retains it equitable power to freeze assets. See, e.g., United States ex rel. Rahman v. Oncology Assocs., 198 F.3d 489, 494-98 (4th Cir. 1999) ("When the plaintiff creditor asserts a cognizable claim to specific assets of the defendant or seeks a remedy involving those assets, a court may in the interim invoke equity to preserve the status quo pending judgment. . . ."); National Union Fire Ins. Co. v. Kozeny, No. Civ.A 00-B-383, 2000 WL 1468607, at *8 (D.Colo. Sept. 25, 2000) (noting "strong nexus between the assets enjoined and Plaintiffs' claim for money damages"); Fairview Mach. Tool Co. v. Oakbrook Int'l, Inc., 77 F. Supp.2d 199, 202-04 (D.Mass. 1999).
At issue here are the proceeds contained in a PACA trust.
Under PACA, a statutory trust is created on sale proceeds of perishable agricultural products in order to protect the security interests of sellers. This has the effect of elevating unsecured general creditors to the status of trust beneficiaries who have rights superior to secured creditors in the trust funds. See JSG Trading Corp. v. Tray-Wrap, Inc., 917 F.2d 75, 77-78 (2d Cir. 1990); In re N. Merberg Sons, Inc., 166 B.R. 567, 570-71 (S.D.N.Y. 1994). Thus, while Plaintiff seeks to freeze Defendants' assets pending payment for goods sold, Plaintiff asserts an equitable interest in those funds as beneficiaries of the statutory trust. Plaintiff's application for injunctive relief therefore falls outside the purview of Grupo Mexicano, not only because of Plaintiff's equitable interest in the trust proceeds, but because courts have traditionally had the power to enjoin defendants from dissipating funds that are the subject of the underlying suit.
SO ORDERED.