Patterson Vegetable Company, LLC v. Superior Foods Inc. et al

Filing 20

Order by Hon. Lucy H. Koh denying 8 Ex Parte Application ; denying 8 Motion for TRO.(lhklc1, COURT STAFF) (Filed on 11/6/2012)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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United States District Court
For the Northern District of California

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SAN JOSE DIVISION

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PATTERSON VEGETABLE COMPANY, LLC, )
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Plaintiff,
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v.
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SUPERIOR FOODS, INC., et. al.,
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Defendant.
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Case No.: 5:12-CV-05286-LHK
ORDER DENYING EX PARTE
TEMPORARY RESTRAINING ORDER

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On November 2, 2012, Plaintiff Patterson Vegetable Company, LLC (“Plaitniff”) filed an
ex parte application for a temporary restraining order (“TRO”) to enjoin Defendants Superior
Foods, Inc., David E. Moore, Monroe Howser, and Lewis M. Lettunich (“Defendants”) from
dissipating trust assets under the Perishable Agriculture Commodities Act, 7 U.S.C. § 499a et seq.
See ECF No. 8. Plaintiff also filed a motion for a preliminary injunction and moved to consolidate
the trial on the merits with the hearing on the preliminary injunction. See ECF Nos. 9 and 10.
Having considered the arguments and declarations provided by Plaintiff, the Court finds that
issuance of a TRO without notice to Defendants is not justified in this case. Accordingly, the
Court DENIES Plaintiff's ex parte application for a TRO. The Court also DENIES Plaintiff's
request to consolidate the trial on the merits with the hearing on the preliminary injunction. The

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Case No.: 5:12-CV-05286-LHK
ORDER DENYING EX PARTE TEMPORARY RESTRAINING ORDER

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Court will hold a hearing on Plaintiff's motion for preliminary injunction on Thursday, December

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13, 2012, at 1:30 p.m.

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I.

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Background
The Perishable Agriculture Commodities Act (“PACA”), 7 U.S.C. § 499a et seq., protects

sellers of perishable agricultural goods by requiring a merchant, dealer, or retailer of perishable

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produce to hold in trust proceeds from the sale of the perishable produce, and food derived from

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that produce, for the benefit of all unpaid suppliers. 7 U.S.C. § 499e(c)(2); Royal Foods Co., Inc.

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v. RJR Holdings, Inc., 252 F.3d 1102, 1104–05 (9th Cir. 2001). District courts have jurisdiction

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over actions brought by trust beneficiaries to enforce payment from a trust, 7 U.S.C. § 499e(c)(5),

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United States District Court
For the Northern District of California

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including actions to enjoin dissipation of trust assets. Frio Ice, S.A. v. Sunfruit, Inc., 918 F.2d 154,

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157–58 (11th Cir. 1990).

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Plaintiff is a PACA licensee that has sold perishable agricultural commodities to Defendant

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Superior Foods. Declaration of Eric Schwartz in Support of Plaintiff’s Ex Parte Motion for

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Temporary Restraining Order Without Notice and Preliminary Injunction, ECF No. 12 (“Schwartz

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Decl.”), ¶¶ 6, 7. Plaintiff claims that “[o]ver the course of seven transactions, [Plaintiff] sold

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perishable agricultural commodities… to” Defendant Superior Foods. Id., ¶ 7. Plaintiff contends

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that Defendant Superior Foods has not paid for these commodities. Id., ¶ 14. The outstanding

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balance for the commodities is $106,692.84. Declaration of Jeff Foreman in Support of Plaintiff’s

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Ex Parte Motion for Temporary Restraining Order Without Notice and Preliminary Injunction,

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ECF No. 13 (“Foreman Decl.”), ¶ 9.

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Plaintiff contends that Plaintiff’s Chief Executive Officer, Eric Schwartz, contacted

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Defendant Moore, the owner of Defendant Superior Foods, regarding Defendant Superior Food’s

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non-payment of Plaintiff’s invoices on or about September 6, 2012. See Schwartz Decl., ¶ 23, 24.

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According to Mr. Schwartz, Defendant Moore stated that Defendant Superior Foods would settle

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its past due invoices for $50,000.00. Id. Mr. Schwartz, rejected this offer. Id., ¶ 25.

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Plaintiff believes that Defendant Superior Foods is dissipating assets covered by the trust

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provisions of PACA. Id., ¶ 29 (“Based upon my experience in the collection of Produce related

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receivables, I have found that when an entity refuses to pay for Produce and carries on other
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Case No.: 5:12-CV-05286-LHK
ORDER DENYING EX PARTE TEMPORARY RESTRAINING ORDER

business activities they inevitably dissipate trust assets.”). Plaintiff therefore seeks a temporary

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restraining order to enjoin Defendants from “using, consuming, or otherwise dissipating trust

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assets….” TRO at 2. Plaintiff also requests that the Court issue the TRO without notice to

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Defendants. See Memorandum of Points and Authorities in Support of Ex-Parte Motion for

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Temprorary Restraining Order and Preliminary Injunction Order, ECF No. 14 at 6-7. Plaintiff

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contends that “advising Defendants of the pendency of this Motion will allow Defendants the

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opportunity to make payments on non-trust debts with trust assets in order to avoid serious

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liabilities, e.g., criminal liability for failure to pay withholding taxes, or civil liabilities.”

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Certification of Counsel as to Why Notice Is Not Required Pursuant to Rule 65(b) (“Certification

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United States District Court
For the Northern District of California

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re: Notice”), ECF No. 16 at 2. Plaintiff further contends that “[o]nce all trust assets are dissipated,

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it is all but impossible to recover them.” Id.

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II.

Legal Standard

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Because Plaintiff seeks issuance of a TRO without notice to the Defendants, Plaintiff must

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satisfy both the general standard for temporary restraining orders and the requirements for ex parte

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orders set forth in Federal Rule of Civil Procedure 65(b). The standard for issuing a TRO is

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identical to the standard for issuing a preliminary injunction. Brown Jordan Int'l, Inc. v. Mind's

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Eye Interiors, Inc., 236 F.Supp.2d 1152, 1154 (D.Haw. 2002); Lockheed Missile & Space Co., Inc.

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v. Hughes Aircraft Co., 887 F.Supp. 1320, 1323 (N.D.Cal. 1995). A plaintiff seeking a preliminary

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injunction must make a four-fold showing: (1) that he is likely to succeed on the merits; (2) that he

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is likely to suffer irreparable harm in the absence of preliminary relief; (3) that the balance of

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equities tips in his favor; and (4) that an injunction is in the public interest. Winter v. Natural Res.

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Def. Council, Inc., 555 U.S. 7, 129 S.Ct. 365, 374, 172 L.Ed.2d 249 (2008); Amer. Trucking

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Assocs., Inc. v. City of Los Angeles, 559 F.3d 1046, 1052 (9th Cir. 2009).

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In addition, a plaintiff seeking issuance of a TRO without notice to the defendant must

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satisfy two further requirements: (1) “specific facts in an affidavit or a verified complaint [must]

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clearly show that immediate and irreparable injury, loss, or damage will result to the movant before

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the adverse party can be heard in opposition,” and (2) the applicant's attorney must certify in

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writing the reasons why notice should not be required. Fed. R. Civ. Pro. 65(b)(1). The Ninth
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Case No.: 5:12-CV-05286-LHK
ORDER DENYING EX PARTE TEMPORARY RESTRAINING ORDER

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Circuit has cautioned that there are very few circumstances justifying the issuance of an ex parte

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TRO. Reno Air Racing Assoc., Inc. v. McCord, 452 F.3d 1126, 1131 (9th Cir. 2006). Such

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circumstances include “a very narrow band of cases in which ex parte orders are proper because

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notice to the defendant would render fruitless the further prosecution of the action.” Id. (quoting

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Amer. Can Co. v. Mansukhani, 742 F.2d 314, 322 (7th Cir. 1984)).

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III.

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Discussion
Plaintiff argues that the Court should issue this TRO without notice to Defendants, because

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“advising Defendants of the pendency of this Motion will allow Defendants the opportunity to

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make payments on non-trust debts with trust assets in order to avoid serious liabilities, e.g.,

United States District Court
For the Northern District of California

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criminal liability for failure to pay withholding taxes, or civil liabilities.” Certification re: Notice at

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2. Plaintiff further contends that “[o]nce all trust assets are dissipated, it is all but impossible to

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recover them.” Id. The Court agrees that dissipation of PACA trust assets constitutes a form of

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irreparable harm that may justify issuance of an ex parte TRO. In enacting the trust provisions of

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PACA, Congress sought to prevent the harm that occurs when dealers pay secured creditors from

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the proceeds of perishable agricultural commodities, leaving agricultural suppliers with no means

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of recovering payment. See 7 U.S.C. § 499e(c) (1); Middle Mountain Land and Produce Inc. v.

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Sound Commodities Inc., 307 F.3d 1220, 1223–24 (9th Cir.2002). The legislative history of PACA

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recognizes that once trust funds are dissipated, it is all but impossible to effect recovery. H.R.Rep.

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No. 98–543 (1983), reprinted in 1984 U.S.C.C.A.N. 405, 411. Accordingly, courts in this district

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have granted ex parte TROs upon a clear showing that notice will result in further dissipation of

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trust assets. Chong's Produce, Inc. v. Meshaal, No. C 09–4787, 2009 WL 3298175 (N.D.Cal.

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Oct.9, 2009); Inn Foods Inc. v. Turner Mead LLC, No. C 07–00649, 2007 WL 484781 (N.D.Cal.

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Feb.9, 2007); but see ASA Farms, Inc. v. Fresh ‘N Healthy, Inc., No. C08–00122, 2008 WL

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115009 (N.D.Cal. Jan.10, 2008) (denying request for ex parte TRO). In this case, however,

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Plaintiff has not clearly shown that immediate dissipation of trust assets will occur before

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Defendants can be heard in opposition, as required by Rule 65(b).

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Plaintiff argues that no notice should be required because Defendants are currently
dissipating trust assets. TRO at 6-7. Plaintiffs argue that this dissipation is evidenced by the
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Case No.: 5:12-CV-05286-LHK
ORDER DENYING EX PARTE TEMPORARY RESTRAINING ORDER

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following facts. First, there is an outstanding balance of $106,692.84. Second, Plaintiffs have

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discussed this balance with Defendant Superior Food’s Chief Financial Officer, Monroe Howser,

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and Defendant Superior Food’s owner, Defendant Moore. Defendant Moore has stated that

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Superior is not willing to pay more than $50,000 to settle the outstanding balance. Third,

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Defendant Moore has stated that Plaintiffs will have to sue to recover more than $50,000. Id. at 6.

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The Court is certainly concerned that Defendants have a substantial outstanding balance and have

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apparently refused to pay the entire amount of this balance. However, these facts do not

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necessarily support the conclusion that Defendants are dissipating trust assets. Moreover, they

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certainly do not show that, if Defendants were provided notice of the TRO and permitted time to

United States District Court
For the Northern District of California

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respond, Defendants would dissipate the assets before the matter could be heard.

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Plaintiffs additionally offer: (1) a statement from Plaintiff’s counsel that “advising

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Defendants of the pendency of this Motion will allow Defendants the opportunity to make

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payments on non-trust debts with trust assets in order to avoid serious liabilities” (Certification re:

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Notice at 2), and (2) a statement from Mr. Schwartz that in his 15 years of “experience in the

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collection of Produce related receivables, [he] ha[s] found that when an entity refuses to pay for

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Produce and carries on other business activities they inevitably dissipate trust assets” (Schwartz

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Decl., ¶¶ 3, 29). Neither statement is supported by any specific facts regarding Defendants, their

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financial state, or their past behavior that would allow the Court to conclude that, if Defendants

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were provided notice and permitted time to respond, Defendants would use the trust funds to pay

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off other debts or otherwise dissipate trust assets so that “the further prosecution of th[is] action”

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would be “render[ed] fruitless.” Air Racing Assoc., Inc., 452 F.3d at 1131. Accordingly, the Court

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DENIES Plaintiff's ex parte motion for a temporary restraining order.

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Although Plaintiff has not persuaded the Court that notice to Defendant would result in

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immediate dissipation of trust assets, the Court finds that Plaintiff has nonetheless made a strong

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enough showing to warrant an expedited hearing on the motion for a preliminary injunction. The

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Court will hold a hearing on Plaintiff's motion for preliminary injunction on Thursday, December

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13, 2012, at 1:30 p.m. Plaintiff also moved to consolidate the trial on the merits with hearing on

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preliminary injunction. Because Defendants have not been served with the complaint or any other
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Case No.: 5:12-CV-05286-LHK
ORDER DENYING EX PARTE TEMPORARY RESTRAINING ORDER

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papers filed by Plaintiff, Defendants could be unfairly prejudiced if trial on the merits were held on

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such short notice. Accordingly, Plaintiff's motion to consolidate the trial on the merits with the

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hearing on preliminary injunction is DENIED.

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IV.

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For the foregoing reasons, the Court HEREBY ORDERS as follows:

Conclusion

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(1) Plaintiff's ex parte application for a temporary restraining order is DENIED.

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(2) Plaintiff's motion to consolidate the trial on the merits with the hearing on preliminary

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injunction is DENIED.
(3) Plaintiff shall immediately serve Defendants with the summons, complaint, and all other

United States District Court
For the Northern District of California

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documents filed in this case, including this Order. Plaintiff shall effect service no later than

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close of business on November 9, 2012.

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(4) Defendant shall file an opposition to Plaintiff's motion for preliminary injunction no later
than November 23, 2012. Plaintiff may file a reply by November 30, 2012.
(5) The hearing on Plaintiff's motion for preliminary injunction shall be held on Thursday,
December 13, 2012, at 1:30 p.m. in Courtroom 8, 4th floor, in the San Jose Courthouse.
IT IS SO ORDERED.

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Dated: November 6, 2012

_____________________________________
LUCY H. KOH
United States District Judge

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Case No.: 5:12-CV-05286-LHK
ORDER DENYING EX PARTE TEMPORARY RESTRAINING ORDER