Citicorp Industrial Credit, Inc v. Brock

• Decision Date: 22 June 1987
• Docket Number: No. 86-88,86-88
• Citation: 107 S.Ct. 2694,97 L.Ed.2d 23,483 U.S. 27
• Parties: CITICORP INDUSTRIAL CREDIT, INC., Petitioner v. William E. BROCK, Secretary of Labor
• Court: U.S. Supreme Court

483 U.S. 27

107 S.Ct. 2694

97 L.Ed.2d 23

CITICORP INDUSTRIAL CREDIT, INC., Petitioner

v William E. BROCK, Secretary of Labor.

No. 86-88.

Argued April 20, 1987.

Decided June 22, 1987.

Syllabus

Section 15(a)(1) of the Fair Labor Standards Act (FLSA or Act) prohibits "any person" from introducing into interstate commerce goods produced in violation of the minimum wage or overtime pay provisions of §§ 6 and 7 of the Act. Under a financing agreement with manufacturer Ely Group, Inc. (Ely), petitioner perfected a security interest in Ely's inventory. After Ely began to fail financially, petitioner took possession of the inventory, part of which was manufactured during a period in which Ely's employees were not paid. Concluding that such items were "hot goods" under § 15(a)(1), the United States Department of Labor filed suits in two Federal District Courts, each of which granted a preliminary injunction prohibiting the transportation or sale of the goods in interstate commerce. The Court of Appeals affirmed the consolidated cases.

Held: Section 15(a)(1) applies to secured creditors who acquire "hot goods" pursuant to a security agreement. Pp. 32-38.

(a) The goods produced during the period when Ely's employees were not paid were manufactured in violation of § 6 and/or § 7 of the Act and are "hot goods" for the purposes of § 15(a)(1). P. 32 33.

(b) As a corporate entity, petitioner falls within § 15(a)(1)'s plain language, since that section prohibits "any person" from introducing "hot goods" into commerce, while the Act defines "person" to include corporations. Petitioner's argument that § 15(a)(1)'s exemptions for common carriers and good-faith purchasers reflect a congressional intent that the "hot goods" prohibition should apply only to culpable parties and not to "innocent" secured creditors is not persuasive. Congress' limitation of the effects of other FLSA provisions to culpable parties indicates that its failure to do so here was not inadvertent. Rather, § 15(a)(1)'s exemption of only two narrow categories of "innocent" persons suggests that all others, whether innocent or not, are covered. There is no indication that Congress actually considered secured creditors when it enacted § 15(a)(1), but, by claiming a general exemption for them, without any duty to ascertain compliance with the Act, petitioner would put them in a better position than good-faith purchasers, whom Congress did specifically act to protect. Detailed and particular FLSA exemptions cannot be enlarged by implication to include persons not plainly and unmistakably within the Act's terms and spirit. Pp. 33-35.

(c) By excluding tainted goods from interstate commerce, the application of § 15(a)(1) to secured creditors furthers the FLSA's goal of eliminating the competitive advantage enjoyed by goods produced under substandard labor conditions. Moreover, prohibiting foreclosing creditors from selling "hot goods" also advances the Act's purpose of establishing decent wages and hours, since such creditors will be encouraged to insist that their debtors comply with the Act's minimum wage and overtime pay requirements. Pp. 35-38.

(d) Applying § 15(a)(1) to secured creditors does not give employees a "lien" on, or priority in, "hot goods" superior to that of the creditors under state law, since creditors' rights in the goods as against the employer are unchanged by such application, while the employees acquire no possessory interest in the goods thereby. Such application is simply an exercise of Congress' power to exclude contraband from interstate commerce. Pp. 38-39.

788 F.2d 1200, affirmed.

MARSHALL, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and BRENNAN, BLACKMUN, POWELL, O'CONNOR, and SCALIA, JJ., joined. SCALIA, J., filed a concurring opinion, post, p. ----. STEVENS, J., filed a dissenting opinion, in which WHITE, J., joined, post, p. ----.

Rex E. Lee, Washington, D.C., for petitioner.

Charles A. Rothfeld, for respondent.

Justice MARSHALL delivered the opinion of the Court.

Section 15(a)(1) of the Fair Labor Standards Act of 1938, 52 Stat. 1068, prohibits "any person" from introducing into interstate commerce goods produced in violation of the minimum wage or overtime provisions of the Act. The question in this case is whether § 15(a)(1) applies to holders of collateral obtained pursuant to a security agreement.

I

In 1983, petitioner entered into a financing agreement with Qualitex Corporation, a clothing manufacturer and the corporate predecessor to Ely Group, Inc., and its subsidiaries Rockford Textile Mills, Inc., and Ely & Walker, Inc. (collectively Ely). Under the terms of the financing arrangement, petitioner agreed to loan up to $11 million to provide working capital for Ely. In return, Ely granted petitioner a security interest in inventory, accounts receivable, and other assets. Petitioner perfected its security interest under applicable state law.

The financing agreement imposed various reporting requirements on Ely, including the submission to petitioner of a weekly schedule of inventory, a monthly balance sheet and income statement, and reports of accounts receivable. Petitioner also monitored the collateral upon which it made cash advances through a system of audits and on-site inspections. In the fall of 1984, Ely's sales began to fall below projections, and the balance on the loan began to increase, reaching over $9.5 million by February 1985. Ely stopped reporting to petitioner in January 1985. On February 8, petitioner stopped advancing funds and demanded payment in full. At the request of Ely's management, however, petitioner did not immediately foreclose. It gave Ely an opportunity to devise a plan for continuing its operations, but Ely was unable to do so. Petitioner waited until February 19, at which time it took possession of the collateral, including Ely's inventory of finished goods.

Ely's employees continued to work until February 19, when Ely ceased all operations and closed its manufacturing facilities. Because Ely defaulted on its payroll, the employ- ees did not receive any wages for pay periods between January 27 and February 19. The Department of Labor concluded that the items manufactured during these times were produced in violation of §§ 6 and 7 of the Fair Labor Standards Act of 1938 (FLSA), 29 U.S.C. §§ 206 and 207, and that under § 15(a)(1), they were "hot goods" that could not be introduced into interstate commerce.¹ Acting on information that petitioner intended to transport these goods in interstate commerce, the Secretary of Labor sought to enjoin shipment.

In an action filed in the United States District Court for the Eastern District of Tennessee, the Secretary moved for a preliminary injunction and sought a temporary restraining order to prohibit Ely and petitioner from placing the goods in interstate commerce. The District Court denied the application for a temporary restraining order but, after a hearing, granted the Secretary's motion for a preliminary injunction. Donovan v. Rockford Textile Mills, Inc., 608 F.Supp. 215 (1985). The Under Secretary of Labor then filed another complaint against Ely and petitioner, this time in the United States District Court for the Western District of Tennessee. This complaint was also accompanied by a motion for a preliminary injunction and application for a temporary restraining order. The District Court granted the temporary restraining order and later granted the Under Secretary's motion for a preliminary injunction. Ford v. Ely Group, Inc., 621 F.Supp. 22 (1985).

Both District Courts held that § 15(a)(1), which makes it unlawful for any person to ship "hot goods" in interstate commerce, prohibited not only Ely but also petitioner from transporting or selling items produced by employees who had not been paid in conformity with §§ 6 and 7 of the FLSA. They found this reading of § 15(a)(1) consistent with congressional intent to exclude from interstate commerce goods produced under substandard labor conditions. 608 F.Supp., at 217; 621 F.Supp., at 25-26. The courts concluded that

" 'in light of the purposes of the Act, it would be an unjust and harsh result for the creditor to get the benefit of the labor of the employees during the period of time they produced goods and were not paid as provided by the Act; a benefit which the creditor would not have without the employees['] labor.' " Id., at 26 (quoting 608 F.Supp., at 217).²

The two cases were consolidated on appeal. The United States Court of Appeals for the Sixth Circuit affirmed, one judge dissenting. Brock v. Ely Group, Inc., 788 F.2d 1200 (1986). Following the plain language of § 15(a)(1), the majority concluded that "any person" as used in that section applies to secured creditors. Id., at 1202-1203. Like the District Courts, it found this result consistent with the purpose of the FLSA: to exclude tainted goods from interstate commerce. Id., at 1203. The Court of Appeals rejected the reasoning of the Second Circuit in Wirtz v. Powell Knitting Mills Co., 360 F.2d 730 (1966), which had held § 15(a)(1) inapplicable to secured creditors who take possession of goods produced in violation of the FLSA. 788 F.2d, at 1204-1205. The Sixth Circuit noted that Congress created only two exceptions to the broad scope of § 15(a)(1), one for common carriers and one for good faith purchasers, id. at 1205, and concluded that "Powell Knitting Mills created an exception for secured creditors that Congress did not and has not deemed appropriate." Id., at 1206. The dissenting judge would have followed Powell Knitting Mills. He maintained that in enacting the "hot goods" provision, Congress was concerned with violations of the Act occurring in the course of the ongoing production of goods by a solvent manufacturer, not, as here, by an insolvent corporation that has ceased operations. Id., at 1207.

We granted certiorari to resolve this conflict among the Circuits.³ 479 U.S. 929,...