Healthy Harvest Berries, Inc. v. Rodriguez, et al.

Filing 20

ORDER ON PLAINTIFF'S REQUEST FOR A PRELIMINARY INJUNCTION signed by District Judge Lawrence J. O'Neill on March 10, 2014. (Munoz, I)

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UNITED STATES DISTRICT COURT

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FOR THE EASTERN DISTRICT OF CALIFORNIA

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HEALTHY HARVEST BERRIES, INC.,

ORDER ON PLAINTIFF’S REQUEST FOR
A PRELIMINARY INJUNCTION

Plaintiff,

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v.

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Case No. 1:14-cv-0218 LJO SKO

RAFAEL RODRIGUEZ, et al.,
Defendants.

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/

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Now before the Court is Plaintiff Healthy Harvest Berries, Inc.’s (“Healthy Harvest Berries’”)

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request for a preliminary injunction against Defendants Rafael Rodriguez (“Mr. Rodriguez”) and his

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business entity Richgrove Produce (“Richgrove”)1 under the Perishable Agricultural Commodities Act

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(“PACA”), 7 U.S.C. § 499a et seq. The Court has carefully reviewed the parties’ submissions on this

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issue, and for the reasons set forth below GRANTS IN PART and DENIES IN PART Healthy Harvest

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Berries’ request for a preliminary injunction.

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I.

Healthy Harvest Berries asserts the following facts. Healthy Harvest Berries grows and sells

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BACKGROUND

strawberries in Royal Oaks, California. (Doc. 7, Decl. of Humberto Gonzales, ¶ 31.) In October 2012,

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Dandrea Produce, Inc. (“Dandrea”) is also a defendant in this case but is not a subject of the request
for preliminary injunctive relief.
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Healthy Harvest Berries reached an agreement with Mr. Rodriguez to supply strawberries to Dandrea

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for sale under Dandrea’s own label. (See id. at ¶¶ 18-20.) Under the arrangement, Mr. Rodriguez was

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to serve as the point of contact between Healthy Harvest Berries and Dandrea, and all invoices were to

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be sent to Mr. Rodriguez and Richgrove. (See id. ¶¶ 17, 20.)

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Healthy Harvest Berries made its first shipment of strawberries to Dandrea in April 2013. (Id.

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¶ 20.) Sometime in early August 2013, Healthy Harvest Berries discovered that Dandrea had not paid

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for shipments of strawberries made in June, July, and August 2013. (Id. ¶ 21.) The missing payments

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amounted to $516,038.90 in sales. (Id. ¶ 9.) When Healthy Harvest Berries questioned Dandrea about

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the overdue balance, Dandrea maintained that it had made the payments to Mr. Rodriguez. (Id. ¶ 23.)

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Mr. Rodriguez, in turn, claimed that he was unable to find the money and needed to check his records.

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(Id. ¶¶ 23-24.) Mr. Rodriguez then claimed that he was due a commission and would not forward any

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of the proceeds to Healthy Harvest Berries, despite Dandrea’s assertion that the proceeds far exceeded

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any commission that could have been owed. (Id. ¶ 25.) Healthy Harvest Berries attempted to contact

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Mr. Rodriguez on multiple occasions thereafter in an effort to resolve the issue and collect the amount

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due, but Mr. Rodriguez did not return any of the calls. (Id. ¶ 26.)
Consequently, on February 19, 2014, Healthy Harvest Berries filed suit against Mr. Rodriguez,

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Richgrove, and Dandrea for, among other things, breach of contract and unjust enrichment. Healthy

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Harvest Berries also moved for a temporary restraining order against Mr. Rodriguez and Richgrove to

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prevent the dissipation of money owed to Healthy Harvest Berries. On February 20, 2014, the Court

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granted Healthy Harvest Berries’ application for a temporary restraining order and ordered the parties

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to file briefing on the issue of whether a preliminary injunction should be issued. Mr. Rodriguez and

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Richgrove filed a timely response on February 28, 2014, and Healthy Harvest Berries filed a timely

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reply on March 4, 2014.

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II.

LEGAL STANDARD

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A court may grant a preliminary injunction pursuant to Federal Rule of Civil Procedure 65(a).

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The purpose of a preliminary injunction is to preserve the status quo and the rights of the parties until

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a final judgment on the merits can be rendered. U.S. Philips Corp. v. KBC Bank N.V., 590 F.3d 1091,

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1094 (9th Cir. 2010). A preliminary injunction, however, “is an extraordinary remedy never awarded
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as of right.” Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 24 (2008). The moving party must

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demonstrate that (1) it is likely to succeed on the merits; (2) it is likely to suffer irreparable harm in the

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absence of preliminary relief; (3) the balance of the equities tips in its favor; and (4) an injunction is in

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the public interest. Id. at 20.
The Ninth Circuit follows a “sliding scale” approach to preliminary injunctions. See Alliance

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for The Wild Rockies v. Cottrell, 632 F.3d 1127, 1131 (9th Cir. 2011). Under this approach, a weaker

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showing as to the likelihood of success on the merits may be offset by a stronger showing with respect

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to the balance of the equities. Id. at 1131-32. For example, if the moving party is unable to establish a

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likelihood of success on the merits, preliminary injunctive relief may still be had if the party can show

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that (1) there are at least “serious questions” going to the merits; (2) the balance of the hardships tips

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“sharply” in its favor; and (3) the other factors listed in Winter (i.e., irreparable harm and in the public

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interest) are satisfied. Id. at 1135. “Serious questions” in the context of preliminary injunctive relief

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are those that are “substantial, difficult, and doubtful, as to make them a fair ground for litigation and

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thus for more deliberative investigation.” Republic of Philippines v. Marcos, 862 F.2d 1355, 1362 (9th

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Cir. 1988) (citation and internal quotation marks omitted). They do not need to “promise a certainty

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of success, nor even present a probability of success, but must involve a fair chance of success on the

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merits.” Id. (citation and internal quotation marks omitted).

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III.

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DISCUSSION
A.

Preliminary Injunction
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Likelihood of Success on the Merits

PACA was “designed in part to assure that farmers are paid for their produce.” Perfectly Fresh

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Farms, Inc. v. United States Dep’t of Agric., 692 F.3d 960, 962 (9th Cir. 2012). To this end, PACA

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provides a statutory trust “in which a produce dealer holds produce-related assets as a fiduciary until

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full payment is made to the produce seller.” Bowlin & Son, Inc. v. San Joaquin Food Serv., Inc. (In re

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San Joaquin Food Serv., Inc.), 958 F.2d 938, 939 (9th Cir. 1992). See 7 U.S.C. § 499e(c). “The trust

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automatically arises in favor of a produce seller upon delivery of produce and is for the benefit of all

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unpaid suppliers or sellers involved in the transaction until full payment of the sums owing has been

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received.” C&E Enters., Inc. v. Milton Poulos, Inc. (In re Milton Poulos, Inc.), 947 F.2d 1351, 1352
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(9th Cir. 1991). The produce seller must then take certain steps to preserve the benefits of the PACA

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created trust. See 7 U.S.C. § 499e(c)(3)-(4).
Generally, to recover the proceeds from a PACA created trust, a plaintiff must demonstrate: (1)

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the commodities sold were perishable agricultural commodities under PACA; (2) the purchaser of the

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perishable agricultural commodities was a commission merchant, dealer or broker; (3) the transaction

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occurred in either interstate or foreign commerce; (4) the plaintiff has not received full payment on the

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transaction; and (5) the plaintiff preserved its trust rights. A&J Produce Corp. v. Chang, 385 F. Supp.

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2d 354, 358 (S.D.N.Y. 2005). The majority of these elements are not contested at this time. There is

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no dispute over whether Healthy Harvest Berries’ sales of strawberries qualify as sales of “perishable

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agricultural commodities” under PACA. See 7 U.S.C. § 499a(4)(A) (defining “perishable agricultural

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commodity” as “Fresh fruits . . . of every kind and character”). There is also no dispute as to whether

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Defendants are “dealers” engaged in interstate commerce. (See Doc. 10, TRO, at 4.) Nor do the parties

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dispute whether Healthy Harvest Berries preserved its trust rights.2
What the parties dispute is the amount owed to Healthy Harvest Berries. This dispute stems

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from the parties’ disagreement over the nature of the agreement between Healthy Harvest Berries, Mr.

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Rodriguez, and Richgrove. According to Healthy Harvest Berries, it agreed to make final sales to Mr.

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Rodriguez and Richgrove at negotiated prices. Mr. Rodriguez and Richgrove, on the other hand, insist

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that the parties agreed to a consignment arrangement in which Defendants agreed to sell strawberries

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for Healthy Harvest Berries and to remit the proceeds of those sales back to Healthy Harvest Berries.

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In exchange, Dandrea was to receive a 10% commission, while Mr. Rodriguez and Richgrove were to

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earn a commission of $0.50 per box of strawberries.
The parties’ positions are supported by competing declarations. For its part, Healthy Harvest

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Berries asserts that the idea of a consignment arrangement was never raised in the parties’ discussions.

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(See Doc. 16, Decl. of Mr. Gonzalez, ¶ 4.) According to Healthy Harvest Berries, the parties agreed to

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sales of strawberries, which were made by Mr. Rodriguez as follows. Mr. Rodriguez would first text

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As will be discussed below, Mr. Rodriguez and Richgrove argue that the amount of any preliminary
injunction should not exceed $93,755.40. If the Court disagrees with this position, Mr. Rodriguez and
Richgrove request expedited discovery on whether Healthy Harvest Berries properly preserved its trust
rights. (Doc. 14 at 4.)
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or call-in purchase orders to Healthy Harvest Berries. (Id. ¶ 6.) Healthy Harvest Berries would then

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call Mr. Rodriguez to confirm the purchase order and to negotiate a price for the shipment. (Id. ¶ 11.)

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Finally, following delivery, Healthy Harvest Berries would send Mr. Rodriguez an invoice confirming

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the transaction and requesting full payment. (Id.) Healthy Harvest Berries has produced $516,038.90

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worth of such invoices, which it maintains Mr. Rodriguez and Richgrove have not yet paid. (See Doc.

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7 ¶ 9 & Ex. 2.)

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Mr. Rodriguez, meanwhile, asserts that the parties’ initial discussions in October 2012 plainly

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contemplated a consignment arrangement between Healthy Harvest Berries and Dandrea. (Doc. 14-1,

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Decl. of Mr. Rodriguez, at 1-2.) This is confirmed by Frank Dandrea, the only other person present at

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these discussions. (See Doc. 14-2, Decl. of Frank Dandrea, ¶ 4.) Mr. Rodriguez further asserts that in

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March 2013, he spoke with Humberto Gonzalez (“Mr. Gonzalez”), a senior sales manager for Healthy

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Harvest Berries. (Doc. 14-1 at 2.) Mr. Rodriguez maintains that during this conversation he reiterated

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that the parties’ agreement entailed a consignment arrangement between Healthy Harvest Berries and

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Dandrea in which he and Richgrove would earn a certain commission for serving as the parties’ point

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of contact. (Id.)
Mr. Rodriguez acknowledges that Healthy Harvest Berries sent him invoices for shipments of

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strawberries, but he disputes their significance. According to Mr. Rodriguez, Healthy Harvest Berries

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told him that the invoices were merely for “[its] records only.” (Id. at 3.) Mr. Rodriguez stresses that

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the invoices were sometimes sent to him several weeks late, in sudden batches, or not at all. (Id.) He

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also maintains that he never made a payment to Healthy Harvest Berries based on an invoice. (Id.) A

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review of Mr. Rodriguez’s schedule of payments to Healthy Harvest Berries seems to confirm this last

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point. (Cf. Doc. 14-1, Ex 1; Doc. 7-2.)

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Finally, Mr. Rodriguez asserts that the parties’ consignment arrangement lasted until late July

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or early August 2013, at which point the parties decided that Healthy Harvest Berries would just deal

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directly with Dandrea. (See Doc. 14-1 at 3-4.) Despite no longer being involved, Mr. Rodriguez and

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Richgrove concede that they still owe Healthy Harvest Berries $93,755.40. (Id. at 4.) Mr. Rodriguez

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explains that this amount represents the difference between (a) consignment proceeds that he received

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while still acting as the parties’ point of contact ($209,308.96); and (b) the commission that he is still

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owed ($111,553.50). (Id. at 4-5.)

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The parties’ sharply conflicting version of the events are, for the most part, equally plausible.

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There is, however, one detail that nudges the scales in favor of Healthy Harvest Berries. As Healthy

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Harvest Berries points out, Mr. Rodriguez and Richgrove have not offered any documentary evidence

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of the consignment agreement. This is particularly notable since, under PACA’s regulations, the terms

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and conditions of the consignment agreement should have been reduced to writing. See 7 C.F.R. §

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46.30(b) (indicating that a consignee is considered a “grower’s agent”); 7 C.F.R. § 46.32(a) (indicating

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that the terms and conditions of a grower’s agent’s responsibilities should be set forth in writing). In

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addition, a consignee owes several duties to the grower, including issuing receipts to the grower for all

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produce received. See 7 C.F.R. § 46.32(b). Mr. Rodriguez and Richgrove, however, have not offered

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anything that resembles consignment receipts. The only documentary evidence currently in the record

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are the invoices that Healthy Harvest Berries sent to Mr. Rodriguez, and these appear to be legitimate

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sales receipts.

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Based on the evidence presented, the Court concludes that Healthy Harvest Berries has made a

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sufficient showing regarding its likelihood of success on the merits. First, it is clear that Mr. Rodriguez

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and Richgrove owe Healthy Harvest Berries at least $93,755.40. Even if, as Mr. Rodriguez argues, the

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parties’ agreement was one involving consignment, Mr. Rodriguez and Richgrove admit that they owe

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Healthy Harvest Berries $93,755.40 in proceeds. Second, there are “serious questions” as to whether

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Mr. Rodriguez and Richgrove owe Healthy Harvest Berries as much as $566,455.65. While success is

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far from certain and will depend largely on credibility determinations, there is at least a “fair chance”

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that Healthy Harvest Berries will be able to prove that its shipments of strawberries to Mr. Rodriguez

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and Richgrove were final sales, not consignments. Marcos, 862 F.2d at 1362. If so, Healthy Harvest

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Berries likely could recover $516,038.90 in unpaid invoices and $50,416.75 in interest and reasonable

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attorney’s fees. See Middle Mountain Land and Produce, Inc., v. Sound Commodities, Inc., 307 F.3d

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1220, 1222-25 (9th Cir. 2002) (holding that contractual rights to interest and attorney’s fees that are

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“in connection with” produce transactions may be subsumed in a PACA trust claim); accord County

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Best v. Christopher Ranch, LLC, 361 F.3d 629 (11th Cir. 2004).
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Irreparable Harm

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The dissipation of PACA trust assets constitutes irreparable harm if it makes ultimate recovery

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unlikely. Tanimura & Antle, Inc. v. Packed Fresh Produce, Inc., 222 F.3d 132, 140-41 (3d Cir. 2000).

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There is sufficient evidence that such is the case here. Mr. Rodriguez initially responded to Healthy

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Harvest Berries’ questions regarding the status of its missing payments by claiming that he was unsure

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where the money had gone. (Doc. 7 ¶ 24.) Mr. Rodriguez was then entirely unresponsive to Healthy

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Harvest Berries’ subsequent attempts to contact him and resolve the issue. (Id. ¶ 26.) Mr. Rodriguez

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now acknowledges that he is “currently quite short of cash” and would need to obtain a family loan to

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pay Healthy Harvest Berries. (Doc. 14-1, Decl. of Mr. Rodriguez, at 5.) Taken together, this evidence

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sufficiently establishes trust dissipation and irreparable harm. See, e.g., Newland N. Am. Foods, Inc.

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v. H.P. Skolnick, Inc., No. 5:13-cv-0934 EJD, 2013 U.S. Dist. LEXIS 29048, at *7-8 (N.D. Cal. Mar.

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4, 2013) (finding irreparable injury where the defendant was unresponsive to the plaintiff’s demands

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for payment and requests for settlement, which indicated an inability to pay); Rey Rey Produce SFO,

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Inc. v. Mis Amigos Meat Market, Case No. C 08-1518 VRW, 2008 U.S. Dist. LEXIS 40607, at *5-6

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(N.D. Cal. April 24, 2008) (finding irreparable injury where there the defendant bounced checks and

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made unfulfilled promises to pay).

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3.

Balance of the Equities

To determine the balance of the equities, a court must identify and weigh “the possible harm

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caused by the preliminary injunction against the possibility of harm caused by not issuing it.” Univ. of

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Hawaii Professional Assembly v. Cayetano, 183 F.3d 1096, 1108 (9th Cir. 1999). The court must then

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decide whether, on balance, the equities favor the issuance of a preliminary injunction. Generally, the

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more likely it is that the party will succeed on the merits, the less the balance of the equities must tip in

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that party’s favor to justify a preliminary injunction. See Los Angeles Mem. Coliseum Commission v.

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National Football League, 634 F.2d 1197, 1203-04 (9th Cir. 1980).

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The possibility of harm to Healthy Harvest Berries in the absence of a preliminary injunction is

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significant: as indicated above, there is a substantial threat that the PACA trust is or will be dissipated,

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rendering full recovery unlikely for Healthy Harvest Berries. See Tanimura, 222 F.3d at 139 (“Once

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the PACA trust is dissipated, it is almost impossible for the beneficiary to obtain recovery.”) (citation
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omitted). In contrast, since Mr. Rodriguez and Richgrove readily admit that they owe Healthy Harvest

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Berries $93,755.40 in produce-related transactions, no injury would be inflicted on Mr. Rodriguez and

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Richgrove’s legitimate interests if the Court enjoins them from withdrawing, transferring, or otherwise

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removing $93,755.40 in PACA trust assets. The balance of the equities therefore tips overwhelmingly

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in favor of a preliminary injunction preserving $93,755.40 in trust assets.

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The more difficult question is whether a preliminary injunction should be imposed to preserve

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up to $566,455.65 in trust assets. This is the amount that Healthy Harvest Berries maintains it is owed

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under the parties’ sales agreements. Since the Court has determined that there are “serious questions”

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on the merits of this issue, (see supra Section III.A.1), the balance of the equities must tip “sharply” in

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Healthy Harvest Berries’ favor before the Court may grant this preliminary injunctive relief. Alliance

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for The Wild Rockies, 632 F.3d at 1131.

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Mr. Rodriguez and Richgrove do not offer any firm evidence or detailed explanation regarding

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the possible harm that they would suffer if a preliminary injunction is imposed. Mr. Rodriguez simply

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states, in conclusory fashion, that the current temporary restraining order is “ruining his business and

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causing him irreparable harm.” (Doc. 14 at 3) (emphasis altered). Nevertheless, it is not too difficult

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to envision the possibility of some harm if a preliminary injunction is imposed on Mr. Rodriguez and

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Richgrove. A PACA trust is a non-segregated floating trust that permits commingling of all produce-

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related trust assets. Endico Potatoes v. CIT Group/Factoring, 67 F.3d 1063, 1067 (2d Cir. 1995). The

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single trust exists for the benefit of all the produce buyer’s suppliers, and continues in existence until

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all the outstanding beneficiaries have been paid in full. See Tom Lange Co. v. Kornblum & Co. (In re

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Kornblum & Co.), 81 F.3d 280, 286 (2d Cir. 1996). Thus, freezing PACA trust assets for the benefit

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of Healthy Harvest Berries impairs the ability of Mr. Rodriguez and Richgrove to satisfy the claims of

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other PACA-protected clients, especially since the amount requested to be frozen here, $566,455.65, is

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substantial. This would harm the business.

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With this in mind, the Court concludes that the balance of the hardships does not tip sharply in

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favor of issuing a preliminary injunction to preserve the full amount of $566,455.65. Rather, the Court

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finds that the balance of the equities favors the protection of an additional $115,553.50 in trust assets,

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for a total of $209,308.90. This amount ($115,553.50) represents the commission that Mr. Rodriguez
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claims he earned. Healthy Harvest Berries has a greater likelihood of prevailing on the merits of this

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issue, as compared to the larger issue of whether the parties’ transactions were final sales as opposed

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to consignments.

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4.

Public Interest

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A preliminary injunction issued for the purpose of protecting PACA trust rights is in the public

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interest. See 7 U.S.C. § 499e(c)(1); see also Tanimura, 222 F.3d at 140 (recognizing that PACA trusts

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“explicitly encapsulate[]” the public interest).

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B.

Expedited Discovery

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As noted above, in the event the Court issues a preliminary injunction for an amount exceeding

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$93,755.40, Mr. Rodriguez and Richgrove request expedited discovery as to whether Healthy Harvest

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Berries properly preserved its trust rights. A court may permit expedited discovery upon a showing of

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good cause. See Fed. R. Civ. P. 26(d)(2); Semitool, Inc. v. Tokyo Electron America, Inc., 208 F.R.D.

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273 (N.D. Cal. 2002). Good cause exists “where the need for expedited discovery, in consideration of

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the administration of justice, outweighs the prejudice to the responding party.” Semitool, at 276. To

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make this determination, courts often consider factors such as (1) whether a preliminary injunction is

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pending; (2) the purpose of the discovery request; (3) the breadth of the discovery request; and (4) the

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burden on the non-moving parties. See American LegalNet, Inc. v. Davis, 673 F. Supp. 2d 1063, 1067

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(C.D. Cal. 2009).
The Court will permit expedited discovery, but will confine it to the issue of whether Healthy

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Harvest Berries failed to preserve its PACA trust rights by sending its invoices in an untimely fashion.

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This is a discrete matter, on which discovery should be easy to obtain. Moreover, resolving this issue

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in favor of Mr. Rodriguez and Richgrove likely would be fatal to the preliminary injunction. See, e.g.,

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DiMare Homestead, Inc. v. Alphas of New York, Inc., Case No. 09 Civ. 6644 (PKC), 2012 U.S. Dist.

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LEXIS 48546, at *35-36 (S.D.N.Y. April 5, 2012). Finally, Healthy Harvest Berries does not oppose

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expedited discovery.

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IV.

CONCLUSION

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Accordingly, for the reasons set forth above, the Court:

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GRANTS Healthy Harvest Berries a preliminary injunction for $209,308.90.
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GRANTS Mr. Rodriguez and Richgrove’s request for expedited discovery on the issue

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of whether Healthy Harvest Berries failed to preserve its PACA trust rights by sending

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its invoices in an untimely fashion. This case shall otherwise proceed normally.

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3.

ORDERS Healthy Harvest Berries, Mr. Rodriguez, and Richgrove to file, by no later
than noon on March 13, 2014, a joint proposed preliminary injunction order.

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IT IS SO ORDERED.
Dated:

/s/ Lawrence J. O’Neill

March 10, 2014

UNITED STATES DISTRICT JUDGE

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