Ford v. Ely Group, Inc.
| Decision Date | 28 March 1985 |
| Docket Number | No. 85-2276H.,85-2276H. |
| Citation | 621 F. Supp. 22 |
| Court | U.S. District Court — Western District of Tennessee |
| Parties | Ford B. FORD, Under Secretary of Labor, United States Department of Labor, Plaintiff, v. ELY GROUP, INC., Rockford Textile Mills, Inc., Ely & Walker, Inc., and Citicorp Industrial Credit, Inc., Defendants. |
Theresa Ball, U.S. Dept. of Labor, Solicitors Office, Nashville, Tenn., for plaintiff.
Mark I. Wallach, Thomas A. Cicarella, Mitchell G. Blair, Calfee, Halter & Griswold, Cleveland, Ohio, Ellen B. Vergos, David J. Sneed, Waring, Cox, Memphis, Tenn., Thornton W. Morris, Atlanta, Ga., Cornelia A. Clark, Farris, Warfield & Kanady, Nashville, Tenn., for defendants.
ORDER GRANTING PRELIMINARY INJUNCTION
On March 21, 1985, this Court entered a temporary restraining order, upon application of the Under Secretary of Labor, United States Department of Labor, enjoining the defendants, Ely Group, Inc., Rockford Textile Mills, Inc., Ely & Walker, Inc., and Citicorp Industrial Credit, Inc., from transferring, releasing, disposing of or attempting to dispose of, liquidating, divesting, moving, allowing the removal of or attempt to remove from defendants' establishment in Memphis, Tennessee, or elsewhere, any raw products, materials, supplies, partially completed goods, finished goods, fixtures, machinery or other goods (as defined by Section 3(i) of the FLSA) then on said premises or elsewhere, and from disposing of or attempting to dispose of any other assets pending a hearing on plaintiff's application for a preliminary injunction.
The Court conducted a hearing for a preliminary injunction, upon notice, on March 26, 1985, as specified in the temporary restraining order.
After a full hearing, the Court finds the following facts:
1) Ely Group Inc., a corporation doing business in Memphis, Tennessee, has been engaged in the manufacture, warehousing and distribution of hosiery, apparel, and other textiles and goods through its subsidiaries Rockford Textiles, Inc., and Ely & Walker, Inc.
2) Citicorp Industrial Credit, Inc. (Citicorp) has been engaged in the business of funding the operational needs of Ely Group, Inc. and its subsidiaries, pursuant to a Financing Agreement, as amended, dated December 14, 1983 (Ex. 2).
3) Citicorp funded on a daily basis a zero balance bank account for Ely Group, Inc. Ely Group, Inc., (Ely) was requested to notify Citicorp each day as they obtained information from the banks that checks had cleared and Citicorp transferred funds by wire daily to meet the banking needs of Ely Group, Inc. Payments by customers of Ely Group, Inc., were made to Citicorp through a lock box system, a control system insuring that the money owed by Ely Group would flow back to the creditor Citicorp. While there is no evidence of collusion between officials of Citicorp and Ely Group, Inc., the evidence does show that Citicorp knew it was funding the payroll of Ely Group, Inc., and when this funding ceased Ely could not meet its payroll obligations to its employees.
4) Citicorp perfected its security interest in all inventory, accounts receivable, and other assets of Ely Group, Inc. by filing for recordation all appropriate documents in the proper counties of Tennessee and with the Secretary of State for the State of Tennessee. Citicorp is a secured creditor of Ely Group, Inc., and is fully perfected upon the assets of Ely Group, Inc., (Ex. 4).
5) Citicorp conducted an ongoing monitoring system through auditors and/or field examiners who verified collateral upon which it made cash advances to Ely Group, Inc. These representatives of Citicorp conducted this monitoring on the premises of Ely Group, Inc., and its subsidiaries. They checked inventory, sales, credits and purchases to see if they were consistent with figures supplied to it by Ely Group, Inc. While these representatives did not verify wages paid to employees, they did check to see if Ely Group, Inc. paid all employee taxes.
6) During the Fall of 1984, Ely Group, Inc., started missing its sales projections. In February of 1985, the loan balance was about $9,500,000 and Ely Group, Inc., was losing money. Citicorp was concerned with why the inventory of Ely Group, Inc., was dropping precipitously while no sales were occurring.
7) On February 8, 1985, Citicorp delivered a letter to Ely Group, Inc., informing Ely it would no longer make cash advances and all loans due Citicorp by Ely Group, Inc., were due and payable.
8) On February 11, 1985, Ely Group, Inc., requested time to consult with a crisis management firm. This approach to the problems of Ely Group, Inc., did not prove worthwhile. Ely Group, Inc., was not generating cash but was actually consuming cash at the rate of $500,000.00 per week.
9) On February 19, 1985, Citicorp took possession of all assets of Ely Group, Inc., and the company ceased doing business on that date. Citicorp claims it is in a deficit position of $1,500,000 and is paying for warehousing of inventory it seized, guard service, insurance and utility bills. Citicorp has collected $1,200,000 in receivables at the Memphis location.
10) Hourly, bi-weekly and monthly employees have not been paid for their work which went into the manufacture and production of goods seized by Citicorp.
11) Approximately 300 hourly pay and bi-weekly pay employees at the Paragould, Arkansas, plant have not been paid for their work for a period of two to three weeks. Approximately 300 employees at the Rockford Textile Mills plant have not been paid for their work. In addition hourly, bi-weekly, monthly pay and executive employees who worked in the Memphis offices and warehouse remain unpaid.
12) While Citicorp argued that the entry of a preliminary injunction in this case will affect employment opportunities for Memphis workers at Ely Group, Inc., the evidence shows no future employment opportunities are contemplated for the Memphis operations of Ely Group, Inc. Instead, the proof shows Citicorp has negotiated a possible sale of a major part of the assets of Ely Group, Inc., and plans to transfer inventory it has foreclosed upon from the Memphis warehouse facilities to Nashville, Tennessee and that transfer is imminent.
13) Representatives of the United States Department of Labor informed an attorney for Citicorp that goods had been produced by employees of Ely Group, Inc., and its subsidiaries, in violation of the Fair Labor Standards Act. Specifically, the Labor Department took the position these employees had not been paid according to the Act and the goods manufactured and produced during the period when employees were not paid could not be introduced into interstate commerce. The evidence is that Citicorp has shipped goods in interstate commerce since the facilities and subsidiaries of Ely Group, Inc., ceased operations and did so with knowledge that employees of the various entities had not been paid. Specifically there have been shipments to Walmart and Sears Roebuck & Company stores since February 19, 1985, of 1800 dozen shirts valued in excess of $100,000 and 2000 dozen shirts valued at about $7.60 per shirt.
14) Citicorp released a news item from its New York offices stating the inventory it had foreclosed upon pursuant to its perfected security interest would be sold to recoup some of its losses in its dealings with Ely Group, Inc., and subsidiaries.
The central issue in this case as stated by Citicorp is whether Section 15(a)(1) of the Fair Labor Standards Act applies to a secured creditor in possession who is fully perfected with top lien rights under state law. Can that secured creditor be forced by the Fair Labor Standards Act to take a back seat to unpaid workers despite its secured status? Stated another way, the issue is whether Citicorp, a secured creditor, who has forclosed upon the assets of its debtor, Ely Group, Inc. and its subsidiaries, and is in possession of those assets, a substantial part of which were produced by unpaid workers allegedly in violation of the Fair Labor Standards Act, can be enjoined pursuant to Section 217, Title 29, United States Code from violating Section 215, Title 29, United States Code.
This Court rules Citicorp is subject to be enjoined and the Court finds it should grant a preliminary injunction enjoining Citicorp from disposing of...
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