Hiller Cranberry Products, Inc. v. Koplovsky, 98-1398

• Decision Date: 29 July 1998
• Docket Number: No. 98-1398,98-1398
• Citation: 165 F.3d 1
• Parties: HILLER CRANBERRY PRODUCTS, INC., Plaintiff, Appellant, v. Edward M. KOPLOVSKY, Koplovsky Foods, Inc., and Clermont, Inc., Defendants, Appellees. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 1

165 F.3d 1

HILLER CRANBERRY PRODUCTS, INC., Plaintiff, Appellant, v. Edward M. KOPLOVSKY, Koplovsky Foods, Inc., and Clermont Inc., Defendants, Appellees.

No. 98-1398.

United States Court of Appeals First Circuit.

Heard July 29, 1998.

Decided Jan. 4, 1999.

Evan Slavitt, with whom Andrew A. Honegger, Benjamin G. Robbins and Gadsby & Hannah LLP were on brief, for appellant.

John J. Monaghan, with whom Gordon P. Katz, Paul G. Lannon and Sherburne, Powers & Needham, P.C. were on brief, for appellees.

Before TORRUELLA, Chief Judge, WELLFORD, ^* Senior Circuit Judge, and SELYA, Circuit Judge.

WELLFORD, Senior Circuit Judge.

We are confronted in this case with difficult issues involving the interpretation of the Perishable Agriculture Commodities Act of 1930, 7 U.S.C. § 499a, et seq. ("PACA"). Plaintiff Hiller Cranberry Products, Inc. ("Hiller"), entered into a supply agreement (the "Supply Agreement") with Koplovsky Foods, Inc. ("KFI"), which is owned by Edward Koplovsky ("Koplovsky"), whereby Hiller was to sell KFI 33% of its cranberry crop from 1996 through 1998. After the delivery of about $7 million in cranberries in the fall of 1997, KFI failed to pay approximately $4.4 million of the agreed purchase price. Hiller sued KFI, Clermont, Inc. ("Clermont"), and Koplovsky in district court, alleging state-law breach of contract and misrepresentation claims, and also a federal claim under PACA. Hiller sought a preliminary attachment, but the district court found that only a partial attachment was appropriate. This is an appeal from that determination. For the following reasons, we reverse in part the district court's decision.

BACKGROUND

Hiller is in the business of selling cranberries, those that are grown by the Hiller family and also those obtained from other growers on Cape Cod in Massachusetts. Defendant KFI is a Massachusetts company that purchases raw fruit from third-party growers to be sold to processors for the production of, among other things, fruit juice concentrate. Defendant Clermont is an Oregon corporation with its principal place of business in Duxbury, Massachusetts. Clermont processes raw produce into fruit juice concentrate. For many years, Hiller has done business with Edward M. Koplovsky, the president and sole shareholder of both KFI and Clermont. Until 1996, business between Hiller and Koplovsky occurred on a handshake basis.

On or about September 10, 1996, KFI entered into the written Supply Agreement to purchase one-third of Hiller's Massachusetts-grown cranberries in 1996, 1997, and 1998.

The agreed-upon purchase price was $90 per barrel subject to certain price adjustments. Under the Agreement, KFI agreed to pay 75% of the purchase price within ten days of the invoice date, with the remainder payable in two equal installments on January 1 and February 1 of the following year.

Between September 25 and November 25, 1997, KFI accepted delivery of nearly seven million dollars of Hiller's cranberries. KFI owes Hiller an outstanding balance of $4,225,455.58, plus interest, on the cranberries. Hiller also agreed to clean some cranberries for KFI, for which it charged $215,038.49. Thus, KFI, now bankrupt, owes Hiller a total of $4,440,494.07.

Upon the purchase of the cranberries from Hiller, KFI immediately sold them to Clermont. Indeed, Koplovsky arranged for shipment of the Hiller cranberries directly from Hiller to Clermont's facilities in New York. Thus, KFI merely served as a broker or conduit for Clermont. Clermont, in turn, immediately pledged the Hiller cranberries to its lender to secure a multi-million dollar loan. Clermont used only a fraction of the loan proceeds to pay for the cranberries, and it used the rest to pay Mr. Koplovsky and other creditors of Koplovsky and his companies. ¹

When it was apparent that no additional payment was forthcoming from KFI, Hiller made demand for the immediate payment of the outstanding balance due under the Agreement on or about December 1, 1997. Despite alleged assurances from Koplovsky, KFI failed to pay Hiller the outstanding balance. On or about December 5, 1997, Hiller filed a Notice of Intent to Preserve Trust Benefits with the United States Department of Agriculture and sent a copy of the notice to KFI. That filing purported to set forth a priority claim under PACA.

On March 11, 1998, still having received no payment, Hiller filed suit in district court against Koplovsky individually, KFI, and Clermont for damages arising from the failure to pay the approximately $4.4 million due for the cranberries and cranberry services. Hiller sought a declaration that (1) very large quantities of cranberries were subject to a PACA trust, (2) each defendant had committed unfair and deceptive acts within the meaning of PACA, and (3) that the defendants had breached the fiduciary duties imposed by PACA. Hiller claimed, among other things, that Clermont and Koplovsky were liable for KFI's debts under PACA and as "alter egos" of KFI. In addition, Hiller claimed that Koplovsky was engaged in a course of conduct calculated to conceal assets and to deprive creditors of access to these assets. It alleged that Koplovsky transferred substantial real property, including his cranberry bogs in Plymouth County, Massachusetts, to various limited partnerships for a nominal sum ($1). Though Koplovsky had explained the transfers as "estate planning," they occurred in the midst of the cranberry price decline and during the time KFI was failing to pay Hiller.

At the outset of the lawsuit, the court granted Hiller an ex parte temporary restraining order ("TRO") preventing the defendants from disposing of any assets other than in the ordinary course of business. On March 18, 1998, the parties stipulated to a TRO, a preliminary injunction, and attachments against all the defendants pending further order of the court. Later, the district court heard oral arguments regarding Hiller's motion for the issuance of a preliminary injunction and writ of attachments against all of the defendants, and also regarding the potential liability of Clermont and Koplovsky under PACA and as alter egos of KFI.

On April 9, 1998, the district court issued an order granting a preliminary injunction against KFI and continuing the writs of attachment in the amount of $4,440,494.07 upon all the assets of KFI. The order also enjoined Clermont as a "reach-and-apply" defendant In a memorandum dated April 17, 1998, the district court addressed the potential liability of Clermont and Koplovsky individually. Hiller Cranberry Prods., Inc. v. Koplovsky Foods, Inc., 2 F.Supp.2d 157 (D.Mass.1998). First, the court found that Hiller would not likely succeed on its PACA claim against Clermont and Koplovsky, because the Supply Agreement allowed for 25% of the purchase price to be paid outside the thirty-day limitation imposed by PACA. Id. at 160-61. Also, the district court found that Hiller was not likely to succeed under an "alter ego" theory against either Clermont or Koplovsky. Id. at 161-64. The district court specifically found that the evidence weighed against piercing the corporate veil of KFI because there was no evidence that corporate funds had actually been appropriated for personal use, nor was there evidence that Hiller had been misled as to the separate identities of the defendants. Id. Finally, the district court determined that the complaint was not sufficiently specific to support the state law claims, but that, even if the complaint were sufficient, no federal subject matter jurisdiction existed absent a valid claim under PACA. Id. at 164-65.

from paying any amount due to KFI and enjoined KFI from receiving any of its approximately $10 million receivable from Clermont. The court did not at that time grant Hiller a preliminary injunction and a writ of attachment against Koplovsky individually.

Hiller appealed and simultaneously moved the district court to stay its order pending appeal. The district court denied the motion to stay but allowed a temporary stay so that Hiller could request a stay from this circuit. We then granted a stay pending an appeal, effectively reinstating the original attachments and injunctions which precluded the defendants from transferring assets except in the normal course of business. The defendants subsequently filed an emergency motion for reconsideration of the stay pending appeal. We denied that motion for reconsideration, but ordered an expedited briefing schedule.

ANALYSIS

This court "will reverse a district court's denial of a preliminary injunction only if the district court abused its discretion." American Bd. of Psychiatry & Neurology, Inc. v. Johnson-Powell, 129 F.3d 1, 2-3 (1st Cir.1997) (citing Camel Hair & Cashmere Institute of Am., Inc. v. Associated Dry Goods Corp., 799 F.2d 6, 12-13 (1st Cir.1986)). The district court's decision to grant or deny a preliminary injunction is reviewed by this court "under a relatively deferential glass," because decisions to grant or deny injunctive relief "can best be made by trial courts steeped in the nuances of a case and mindful of the texture and scent of the evidence." Independent Oil & Chem. Workers of Quincy, Inc. v. Procter & Gamble Mfg. Co., 864 F.2d 927, 929 (1st Cir.1988); K-Mart Corp. v. Oriental Plaza, Inc., 875 F.2d 907, 915 (1st Cir.1989). "Absent clear error or other abuse of discretion, we will not reverse a district court's denial of an injunction merely because we would have been inclined to grant the injunction had we heard the matter ourselves." American Bd. of Psychiatry, 129 F.3d at 3. We review de novo, on the other hand, the district court's construction of PACA and its other conclusions of law. See In re Altabon Foods, Inc., 998 F.2d 718, 719 (9th Cir.1993).

As indicated above, Hiller sought a preliminary injunction against the defendants restricting all transfer of assets except in the ordinary course of business, and it also sought a prejudgment attachment on ...