Tanimura & Antle Inc. v. Packed Fresh Produce

• Decision Date: 25 May 2000
• Citation: 222 F.3d 132
• Parties: (3rd Cir. 2000) TANIMURA & ANTLE, INC.; TOM LANGE CO., INC.; CARLSBAD PRODUCE, INC.; TANIMURA DISTRIBUTING, INC.; STEVECO, INC., Appellants v. PACKED FRESH PRODUCE, INC.; DAVID W. MENADIER; JOE DUREL, d/b/a J.D. INVESTMENTS NO. 00-5056 Argued:
• Court: U.S. Court of Appeals — Third Circuit

Page 132

222 F.3d 132 (3rd Cir. 2000)

TANIMURA & ANTLE, INC.; TOM LANGE CO., INC.; CARLSBAD PRODUCE, INC.; TANIMURA DISTRIBUTING, INC.; STEVECO, INC., Appellants v. PACKED FRESH PRODUCE, INC.; DAVID W. MENADIER; JOE DUREL, d/b/a J.D. INVESTMENTS

NO. 00-5056

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Argued: May 25, 2000

Filed August 15, 2000

On Appeal From the United States District Court For the District of New Jersey (D.C. Civil No. 00-cv-00279), District Judge: Honorable William H. Walls R. Jason Read, Esq. Bartholomew M. Botta, Esq. RYNN & JANOWSKY 4100 Newport Place Drive Suite 700 Newport Beach, CA 92660 Jeffrey M. Chebot, Esq. [ARGUED] WHITEMAN BANKES & CHEBOT, Philadelphia, PA, Counsel for Appellants.

Before: ALITO and RENDELL, Circuit Judges, and DUHE, Senior Circuit Judge^*

OPINION OF THE COURT

RENDELL, Circuit Judge.

At issue in this appeal is whether, and if so, under what circumstances, a district court can grant equitable injunctive relief to a trust beneficiary to prevent dissipation of trust fund assets under the Perishable Agriculture Commodities Act ("PACA"), 7 U.S.C. S 499a et seq. (1998). Appellants, Tanimura & Antle, Inc., Tom Lange Co., Carlsbad Produce, Inc., Tanimura Distributing, Inc., and Stevco Inc., are sellers of perishable agricultural commodities and beneficiaries of a statutory trust provided for by PACA. See 7 U.S.C. S 499e(c). Appellees, Packed Fresh Produce, Inc. and David W. Menadier,¹ are buyers of these perishable agricultural commodities and became statutory trustees under PACA upon purchase of such goods. See id. Appellants sought injunctive relief against Appellees to prevent dissipation of PACA trust assets and, also, against a third defendant, Joe Durel, doing business as J.D. Investments, who allegedly was converting, or already had converted, to his own use and benefit, PACA trust assets rightfully belonging to Appellants.

The District Court declined to grant injunctive relief because it believed that Appellants had an adequate remedy at law in a suit for money damages and, further, that injunctive relief was futile when the PACA trust assets were already being depleted. We first conclude that the District Court had jurisdiction to grant private injunctive relief. Second, we hold that equitable relief can issue to aid the rights of sellers who qualify as PACA trust beneficiaries, and because Appellants adequately demonstrated the likelihood of dissipation of trust fund assets and the likelihood of irreparable harm, the District Court should have granted the injunction sought. We will reverse and remand.

I. FACTS

In a series of transactions between November 1999 and early January 2000, Appellants sold and shipped perishable agricultural commodities to Appellees in compliance with Appellees' requests. Appellees accepted and resold these commodities, but failed to pay the accumulated balance of $1,441,447.60 owed to Appellants. In response, Appellants gave proper notice of intent to preserve their rights as beneficiaries to a PACA trust, see 7 U.S.C. S 499e(c)(3), (4), and subsequently sought equitable relief to preserve their rights under PACA and to prevent trust dissipation.

Appellants submitted evidence to the District Court of Appellees' dissipation of trust assets and precarious financial position, specifically the Appellees' lack of sufficient cash or other assets to pay for the commodities in full or on time. See District Court Transcript ("Tr.") at 6; Brief for Appellant at 4. Appellees did not appear before the District Court (or file a brief on appeal) and neither they nor the District Court challenged the evidence offered by Appellants regarding the Appellees' trust dissipation and detrimental financial condition. Appellants' evidence includes the following: copies of Appellees' checks to Appellants that were returned for insufficient funds, copies of Appellees' checks that were post-dated as late as March 2000 for already-overdue balances, and affidavits from Appellants' employees responsible for accounts receivable. These affidavits affirmed that Appellees repeatedly admitted an inability to pay the amounts rightly owed to Appellants,² that Appellees often promised partial payment or assured Appellants that payment was "in the mail" and either payment was never received or there were insufficient funds to cover the checks, and that Appellees actually made additional purchases from Appellant Tanimura & Antle, Inc. totaling $200,000 despite acknowledging an overdue balance of $400,000.

Appellants sought an order to show cause and for temporary restraint or a preliminary injunction to (1) prevent Appellees from further dissipating the PACA trust assets that belonged to Appellants and (2) require Appellees to release or otherwise set aside the PACA trust assets belonging to Appellants pending final adjudication of the complaint on file with the District Court. On appeal, Appellants argue that an injunction should have been issued to prevent dissipation of the PACA trust assets.

II. BACKGROUND

Congress enacted PACA in 1930 to promote fair trading practices in the produce industry. See Idahoan Fresh v. Advantage Produce, Inc., 157 F.3d 197, 199 (3d Cir. 1998). In particular, Congress intended to protect small farmers and growers who were especially vulnerable to the practices of financially irresponsible commission merchants, dealers, and brokers, who we will collectively refer to as "buyers." See 7 U.S.C. S 499a et seq. In its original form, PACA contained two main features designed to protect sellers of perishable agricultural commodities: (1) a requirement that all buyers obtain a license from the Department of Agriculture that was revocable upon a determination that the buyer repeatedly or flagrantly violated prohibitions of unfair conduct and (2) a procedure under which unpaid suppliers could obtain an order from the Department of Agriculture requiring the offending buyer to pay damages to the injured seller. See Andrew M. Campbell, Annotation, Statutory Trust Under Perishable Agricultural Commodities Act, 128 A.L.R. Fed. 303, 316 (1995).

Congress examined the sufficiency of the PACA provisions fifty years later and determined that prevalent financing practices in the perishable agricultural commodities industry were placing the industry in jeopardy. Particularly, Congress focused on the increase in the number of buyers who failed to pay, or were dilatory in paying, their suppliers, and the impact of such payment practices on small suppliers who could not withstand a significant loss or delay in receipt of monies owed. See H.R. Rep. No. 98-543, at 3 (1983), reprinted in 1984 U.S.C.C.A.N. 405, 406; see also In re W.L. Bradley, 78 B.R. 92, 93 (Bankr. E.D. Pa. 1987). Also, Congress was troubled by the common practice of produce buyers granting liens on their inventories to their lenders, which covered all proceeds and receivables from sales of perishable agricultural commodities, while the produce suppliers remained unpaid. See H.R. Rep. No. 98-543, at 3 (1983), reprinted in 1984 U.S.C.C.A.N. 405, 406. This practice elevated the lenders to a secured creditor position in the case of the buyers' insolvency, while the sellers of perishable agricultural commodities remained unsecured creditors with little legal protection or means of recovery in a suit for damages. See id.

Deeming this situation a "burden on commerce," Congress amended PACA in 1984 to include a statutory trust provision, 7 U.S.C. S 499e(c), which provides an additional seller's remedy, or safeguard through increased credit security in the absence of prompt payment for perishable agricultural commodities.³ See id. S 499e(c)(2). Under the 1984 amendment, 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. See 7 U.S.C. S 499e(c); 7 C.F.R. S 46.46(b). This trust is created by operation of law upon the purchase of such goods, and the produce buyer is the statutory trustee. See 7 U.S.C. S 499e(c)(3). 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. See id. Alternatively, the unpaid seller may provide notice of intent through its ordinary and usual billing or invoice statements. See id. S 499e(c)(4).⁴

PACA contains both a general remedial provision dating back to its 1930 enactment and a specific jurisdictional provision added as part of the 1984 amendment. Specifically, the original remedial provision, which remains intact today, states that liability under PACA may be enforced by:

(1) complaint to the Secretary of Agriculture as provided by the remainder of the statute, or (2) by suit in any court of competent jurisdiction; but this section shall not in any way abridge or alter the remedies now [on June 10, 1930] existing at common law or by statute, and the provisions of this Act [7 U.S.C. S 499 et seq.] are in addition to such remedies.

Id. S 499e(b). When Congress adopted the concept of the statutory trust itself and considered its implications, it included in the trust provisions certain additional remedial language:

The several district courts of the United States are vested with jurisdiction specifically to entertain (i) actions by trust beneficiaries to enforce payment from the trust, and (ii) actions by the Secretary to prevent and restrain dissipation of the trust.

Id. S 499e(c)(5).

Appellants filed a complaint in the District Court to enforce their right to payment under the statutory provisions and sought a temporary restraining order or preliminary injunction to prevent further dissipation of trust assets. The District Court held a hearing at which it inquired into the need for equitable relief and expressed its view that Appellan...