Baginski Potato Company Ltd v. Custom Cuts Fresh LLC et al

Filing 5

ORDER signed by Judge Lynn Adelman on 5/10/11 denying 3 Motion for TRO. Further ordering that defendants file a written response to plaintiffs motion for preliminary injunction within five days of being served with the motion and this order. (cc: all counsel) (dm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN

BAGINSKI POTATO COMPANY, LTD.,
Plaintiff,
v.

Case No. 11-C-0439

CUSTOM CUTS FRESH, LLC and
BRADLEY BECKMAN,
Defendants.

DECISION AND ORDER
On May 6, 2011, plaintiff Baginski Potato Company, Ltd., filed this action against
Custom Cuts Fresh, LLC (“Custom Cuts”) and Bradley Beckman pursuant to the
Perishable Agricultural Commodities Act (“PACA”), 7 U.S.C. § 499a, et seq. Before me
now is plaintiff’s motion for a temporary restraining order (“TRO”).
PACA regulates trading practices in the perishable agricultural commodities
industry. Among other things, PACA requires produce buyers to make “full payment
promptly” to their sellers. 7 U.S.C. § 499b(4). To protect sellers from buyers who fail to
make prompt payment, PACA includes a statutory trust provision, 7 U.S.C. § 499e(c).
Under this provision, perishable agricultural commodities, inventories of food or other
derivative products, and any receivables or proceeds from the sale of such commodities
or products, are to be held in a non-segregated floating trust for the benefit of unpaid
sellers. This trust is created by operation of law upon the purchase of produce, and the
produce buyer is the statutory trustee. To protect the assets of the trust, the unpaid
supplier must give the trustee written notice of intent to preserve the trust within thirty
calendar days after payment was due. Alternatively, the unpaid seller may provide notice

of intent through its ordinary and usual billing or invoice statements. See Tanimura &
Antle, Inc. v. Packed Fresh Produce, Inc., 222 F.3d 132, 136 (3d Cir. 2000). For produce
sellers, a principal benefit of the trust is that they are placed first in line among creditors
for all produce-related assets if the produce dealer declares bankruptcy. Frio Ice, S.A. v.
Sunfruit, Inc., 918 F.2d 154, 156 (11th Cir. 1990).
Between November 2, 2010 and January 20, 2011, plaintiff sold $87,904.81 worth
of potatoes to Custom Cuts on credit. On its usual invoices, plaintiff provided notice of its
intent to preserve trust benefits. To date, Custom Cuts has not paid plaintiff for the
potatoes, and payment is overdue. Moreover, a check that Custom Cuts tendered to
plaintiff in January of this year was returned for insufficient funds. Plaintiff thus brought this
action to enforce its trust rights against Custom Cuts and its owner, Bradley Beckman.
In cases in which produce buyers fail to pay their suppliers and the supplier is able
to show that the buyer is dissipating trust assets – that is, able to show that the buyer has
sold the produce and is in the process of using the proceeds for purposes other than
paying the supplier – courts will often grant the supplier a preliminary injunction requiring
the buyer to escrow the proceeds from the produce sales pending resolution of the lawsuit.
See Tanimura & Antle, 222 F.3d at 139-41; Frio Ice, 918 F.2d at 160. This is because
when the buyer appears to be dissipating the trust, there is a risk that the seller will be
unable to collect a judgment entered against the buyer at the end of the case. The seller
is thus deemed to lack an adequate remedy at law and to be at risk of suffering irreparable
injury. Tanimura & Antle, 222 F.3d at 139. In the present case, plaintiff seeks such a
preliminary injunction and points to the check returned for insufficient funds as evidence
that Custom Cuts is dissipating trust assets and in serious financial trouble.
2

Even if plaintiff is entitled to a preliminary injunction requiring Custom Cuts to escrow
the proceeds from the sale of plaintiff’s potatoes, however, that does not mean it is also
entitled to an ex parte restraining order. To obtain ex parte relief, plaintiff must not only
show that the criteria for obtaining a preliminary injunction are satisfied, it must also “clearly
show” that irreparable injury, loss, or damage will result before the defendants can be
heard in opposition.

See Fed. R. Civ. P. 65(b)(1).

This is because “our entire

jurisprudence runs counter to the notion of court action taken before reasonable notice and
an opportunity to be heard has been granted both sides of a dispute.” Granny Goose
Foods, Inc. v. Bhd. of Teamsters & Auto Truck Drivers, 415 U.S. 423, 439 (1974).
In the present case, plaintiff’s counsel contends that a TRO should issue without
notice to defendants because “counsel believes that advising Defendants of the pendency
of this [action] will only allow Defendants the opportunity to transfer trust assets and make
unlawful payments on junior non-trust debts with PACA trust assets.”

(Attorney

Certification [Docket #3-2] at 1.) However, by all appearances Custom Cuts is a legitimate
business, see http://www.ccuts.com/, and there is no reason to suppose that once it learns
of the pendency of this suit it will begin to intentionally divest itself of trust assets in order
to prevent plaintiff from recovering them. Anything is possible, of course, but in order to
obtain relief without providing a defendant with a chance to defend itself, the plaintiff must
demonstrate that its fears about the defendant dissipating trust assets in bad faith
immediately upon learning of this lawsuit are based on something other than speculation.
Although it is possible that Custom Cuts will in the ordinary course of its business
further dissipate trust assets before an adversarial hearing on plaintiff’s motion for
preliminary injunction can be held, this possibility is not enough to justify ex parte relief.
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This case does not appear to be factually complex, and so a hearing on the motion for
preliminary injunction can be held in as little as a few days from the time plaintiff provides
defendants with notice of its motion. And as far as the record reveals, it has been months
since Custom Cuts stopped paying plaintiff’s bills, and the check returned for insufficient
funds is dated January 20, 2011. Plaintiff does not explain why it waited until May 6, 2011
to file this lawsuit, and so it is hard for me to conclude that an extra few days’ delay will
cause plaintiff serious irreparable harm.
Accordingly, plaintiff’s motion for a temporary restraining order will be denied.
Plaintiff should attempt to provide defendants with immediate notice of this order and its
motion for a preliminary injunction and attempt to determine who will be representing
defendants in this suit. The parties should then contact the court to schedule further
proceedings on the motion for preliminary injunction. In the meantime, I will order that
defendant file a written response to the motion for a preliminary injunction within five days.
The parties are advised that I am not the district judge assigned to this action. I was
assigned to this motion as the court’s duty judge because this case is currently assigned
to Magistrate Judge Callahan, who cannot grant injunctive relief unless both parties
consent to the exercise of jurisdiction by a magistrate. If either party refuses to consent
to the magistrate’s jurisdiction, the Clerk of Court will randomly reassign this action to a
district judge. Thus, before the parties contact the court to schedule further proceedings
on the motion for preliminary injunction, they should each complete and file their magistrate
consent/refusal forms. If all parties consent, they should contact the chambers of Judge
Callahan to schedule further proceedings. If any party refuses to consent, then the parties

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should contact the chambers of the judge randomly assigned to conduct further
proceedings in this case.
CONCLUSION
For the reasons stated, IT IS ORDERED that plaintiff’s motion for a temporary
restraining order is DENIED.
IT IS FURTHER ORDERED that defendants file a written response to plaintiff’s
motion for preliminary injunction within five days of being served with the motion and this
order.
Dated at Milwaukee, Wisconsin, this 10th day of May, 2011.

/s_______________________________
LYNN ADELMAN
District Judge

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