Donovan v. Rockford Textile Mills, Inc., CIV-4-85-26.

• Decision Date: 22 March 1985
• Docket Number: No. CIV-4-85-26.,CIV-4-85-26.
• Citation: 608 F. Supp. 215
• Parties: Raymond J. DONOVAN, Secretary of Labor, United States Department of Labor, Plaintiff, v. ROCKFORD TEXTILE MILLS, INC., a Corporation; Ely Group, Inc., a Corporation; and Citicorp Industrial Credit Inc., a Corporation, Defendants.
• Court: U.S. District Court — Eastern District of Tennessee

608 F. Supp. 215

Raymond J. DONOVAN, Secretary of Labor, United States Department of Labor, Plaintiff, v. ROCKFORD TEXTILE MILLS, INC., a Corporation; Ely Group, Inc., a Corporation; and Citicorp Industrial Credit Inc., a Corporation, Defendants.

No. CIV-4-85-26.

United States District Court, E.D. Tennessee, Winchester Division.

March 22, 1985.

Francis X. Lilly, Solicitor of Labor, Washington, D.C., Bobbye D. Spears, Regional Solicitor, Atlanta, Ga., Carl W. Gerig, Jr., Associate Regional Solicitor, Teresa Ball, U.S. Dept. of Labor, Office of the Solicitor, Nashville, Tenn., for plaintiff.

John W. Baker, Jr., Knoxville, Tenn., for Citicorp.

Mark I. Wallach, Thomas A. Cicarella and Mitchell G. Blair, Cleveland, Ohio, for Rockford.

Thornton W. Morris, Atlanta, Ga., for Ely & Walker.

MEMORANDUM AND ORDER

HULL, District Judge.

On Friday, March 15, 1985, the plaintiff, Raymond J. Donovan, Secretary of Labor, United States Department of Labor, filed a motion for preliminary injunction and application for temporary restraining order, seeking, among other things, to enjoin the defendants, Rockford Textile Mills, Inc., Ely Group, Inc. and Citicorp Industrial Credit, Inc. (Citicorp), from violating certain sections of the Fair Labor Standards Act, specifically 29 U.S.C. §§ 206, 215(a)(1), and 215(a)(2). The Court denied the initial application for a temporary restraining order on March 15, 1985, and notified the parties that the Court would hold a show cause hearing on the motion for a preliminary injunction on March 20, 1985.¹ At the hearing on March 20, 1985, the Court granted a preliminary injunction in open court. This memorandum and order contains the Court's reasons for issuing the injunction and describes the acts sought to be restrained as required by Rule 65(d), Federal Rules of Civil Procedure.

It is undisputed that the defendant Ely Group, Inc. d/b/a Rockford Textile Mills, Inc. is a corporation having places of business and doing business in Warren County, Tennessee; that at all times pertinent hereto, it was engaged in the manufacture of hosiery at its manufacturing plant in McMinnville, Tennessee; and that it has been and is engaged in commerce or the production of goods for commerce within the meaning of 29 U.S.C. § 203(b) and (j). It is also undisputed that the defendant Citicorp is a secured creditor of co-defendant Ely Group, Inc. d/b/a Rockford Textile Mills, Inc., a defaulting debtor on funds advanced by Citicorp, which funds were secured by, among other things, Ely's inventory and accounts receivable. It was stipulated by the parties that Citicorp has a perfected security interest and has taken possession of the collateral. Also undisputed is the fact that Ely Group, Inc. d/b/a Rockford Textile Mills, Inc., has failed to meet three payrolls due to be paid their employees during the workweeks ending February 9, 16, and 23, 1985. Further, it is undisputed that operations at the McMinnville plant ceased on February 19, 1985, at which time employees were told to leave.

Title 29 U.S.C. § 206 requires that employers such as Ely Group, Inc. d/b/a Rockford Textile Mills, Inc., pay its employees an hourly wage of not less than $3.35 per hour. Since it is conceded by the parties that the employees at the McMinnville plant were not paid their wages during three (3) payroll weeks, it is clear that all hosiery manufactured during that time period (from February 3, 1985, through February 19, 1985) were produced in violation of the Fair Labor Standards Act.

Title 29 U.S.C. § 215(a) provides, in pertinent part, that:

(a) ... it shall be unlawful for any person (1) to transport, offer for transportation, ship, deliver, or sell in commerce, or to ship, deliver, or sell with knowledge that shipment or delivery or sale thereof in commerce is intended, any goods in the production of which any employee was employed in violation of section 206 or section 207 of this title, or in violation of any regulation or order of the Administrator issued under section 214 of this title; except that no provision of this chapter shall impose any liability upon any common carrier for the transportation in commerce in the regular course of its business of any goods not produced by such common carrier, and no provision of this chapter shall excuse any common carrier from its obligation to accept any goods for transportation; and except that any such transportation, offer, shipment, delivery, or sale of such goods by a purchaser who acquired them in good faith in reliance on written assurance from the producer that the goods were produced on compliance with the requirements of this chapter, and who acquired such goods for value without notice of any such violation, shall not be deemed unlawful; (2) to violate any of the provisions of section 206 or section 207 of this title, or any of the provisions of any regulation or order of the Administrator issued under section 214 of this title; ....

Title 29 U.S.C. § 217 accords the district court jurisdiction to issue orders restraining violations of 29 U.S.C. § 215.

The issue presented in this instance is whether Citicorp as a secured creditor in possession is subject to be enjoined pursuant to 29 U.S.C. § 217 from violating 29 U.S.C. § 215.

The defendant Citicorp urges the Court to adopt the rationale used by the Court of Appeals for the Second Circuit in Wirtz v. Powell Knitting Mills Co., 360 F.2d 730 (2d Cir.1966) which held that the "hot goods" provision does not reach creditors foreclosing by valid process for nonpayment of funds previously advanced. This rationale was adopted by the Fourth Circuit in Schultz v. Factors, Inc., 65 CCH Lab.Cas. 32, 487 (4th Cir.1971) with the proviso that there must be no evidence of "collusion between the manufacturer and his financier permitting the introduction into the market of goods produced in violation of the Act."² Apparently, there are no Supreme Court or Sixth Circuit cases on point with the instant case.

The plaintiff Secretary of Labor contends that 29 U.S.C. § 215(a) is intended by Congress as an absolute prohibition against the sale or shipment of "hot goods" by "any...