United States v. High Plains Livestock, LLC
| Decision Date | 08 December 2015 |
| Docket Number | CV 15–680 MCA/WPL |
| Citation | 148 F.Supp.3d 1185 |
| Parties | United States of America, Plaintiff, v. High Plains Livestock, LLC, dba Producers Livestock Auction, Michael Flen, Calvin Pareo, and Darcie Pareo, Defendants. |
| Court | U.S. District Court — District of New Mexico |
Karen Grohman, Ruth Fuess Keegan, United States Attorney's Office, Albuquerque, NM, for Plaintiff.
Lorraine Hollingsworth, Pete Domenici, Jr., Domenici Law Firm PC, Albuquerque, NM, for Defendant.
William P. Lynch
Chief District Judge Armijo entered an Order of Reference in this case on September 2, 2015, directing me to convene proceedings with the parties and determine whether the appointment of a receiver is appropriate, and if it is, to appoint a receiver and define the scope of his or her involvement with High Plains Livestock (“HPL”). (See Doc. 18.) Prior to the Order of Reference, the United States moved for a preliminary injunction under Section 408 of the Packers and Stockyards Act of 1921 (“PSA”), 7 U.S.C. § 228a (2012)
, that would require the Defendants to cease buying or selling livestock.1 (Doc. 7.) The Defendants, of course, opposed the motion and requested an evidentiary hearing. (Doc. 15.) I held an evidentiary hearing on the issues of 1) whether it is appropriate to appoint a receiver for HPL and 2) the scope of the receiver's duties if it is appropriate to appoint one. (See Docs. 46–49.) At the hearing, the United States requested a preliminary injunction that would shut down HPL entirely during the pendency of this case or, in the alternative, that I appoint a receiver to control all aspects of HPL's business. The Defendants agreed that independent oversight was appropriate, but requested that I appoint a special master in the form of a Certified Public Accountant to engage in minimal financial oversight and essentially audit HPL's records on a regular basis.
After the hearing, Mr. and Ms. Pareo were indicted by the State of New Mexico on a total of 139 felony counts of fraud, conspiracy, forgery, racketeering, and conspiracy to commit racketeering. In light of the State charges, the United States supplemented its request and now recommends that I appoint a receiver for the purposes of determining the ongoing viability of HPL. If HPL is viable, the United States requests that I appoint a receiver and require the Defendants to post a bond with the Court. If HPL is not viable, the United States requests that I appoint a receiver to wind down the business. (See Doc. 51.)
The Defendants filed a Motion to Strike the letter from the United States and asked that I disregard any information contained therein. (Doc. 52.) The fact that the Pareos have been indicted on state charges is a matter of public record and is appropriate for judicial notice: that is, this fact is not subject to reasonable dispute and is generally known within the court's territorial jurisdiction. Furthermore, the fact of the indictment can be readily determined by sources whose accuracy cannot reasonably be questioned. Fed. R. Evid. 201(b)
; see also
United States v. Boyd, 289 F.3d 1254, 1258 (10th Cir.2002). Information related to the individuals and entities contacted by the United States is properly before me at this time and I have taken that information into consideration. Accordingly, the Defendants' Motion to Strike (Doc. 52) is denied.
Having considered the briefing, the evidence, and the relevant law, I find that it is appropriate to appoint a receiver to conduct an initial review of HPL's continued viability and, if viable, to take over all aspects of HPL's operations. Additionally, Defendants Calvin and Darcie Pareo and Michael Flen will have no control over the business, but are permitted to provide advice to the receiver.
The Grain Inspection, Packers, and Stockyards Administration (“GIPSA”), under the United States Department of Agriculture, is responsible for administering the PSA. The PSA regulates the conduct of packers, stockyards, market agencies, and dealers, among others.2 §§ 181–229c. A “packer” is “any person engaged in the business (a) of buying livestock in commerce for purposes of slaughter ....” § 191. A “market agency” is “any person engaged in the business of (1) buying or selling in commerce livestock on a commission basis or (2) furnishing stockyard services.”3 § 201(c). A “dealer” is “any person, not a market agency, engaged in the business of buying or selling in commerce livestock, either on his own account or as the employee or agent of the vendor or purchaser.” § 201(d). Market agencies and dealers must register with the Secretary of Agriculture (“Secretary”). § 203; 9 C.F.R. § 201.10 (2015)
.
Market agencies, packers, dealers, and stockyard owners are required to keep accounts and records that “fully and correctly disclose all transactions involved in [the] business ....” § 221. Whenever livestock is weighed for the purpose of sale, a scale ticket must be issued which must be serially numbered and used in sequential order. 9 C.F.R. § 201.49(a)
. The scale tickets must be retained as part of the market agency's or dealer's business records to substantiate each transaction, and must include: 1) the name and location of the weighing; 2) the date of the weighing; 3) the name of the buyer and seller or consigned, or a readily identifiable designation thereof; 4) the number of livestock; 5) the kind of livestock; 6) the actual weight of each draft of livestock; and 7) the identity of the person who weighed the livestock, or their signature if required by State law. 9 C.F.R. § 201.49(b).
When a packer, market agency, or dealer purchases livestock, it must remit the full purchase price to the seller before the close of the next business day. § 228b(a). Prior to the purchase or sale of livestock, the parties may agree—in writing—to effect payment in a different manner or on a different timeline, provided that any such agreement is disclosed in the business records of the buyer and the seller, and on the accounts or other documents issued by the purchaser relating to the transaction. § 228b(b).
Market agencies are required to maintain a custodial account for trust funds. § 221; 9 C.F.R. § 201.42(a)
. Payments made by a livestock buyer to a market agency selling on commission are trust funds. 9 C.F.R. § 201.42(c). By close of business the next business day after an auction, market agencies are required to deposit into the custodial account: 1) all proceeds collected from the auction and 2) an amount equal to the proceeds receivable from the livestock sale that are due from the market agency; any owner, employee, or officer of the market agency; and any buyer to whom the market agency has extended credit. Id. The market agency must deposit an amount equal to all the remaining proceeds receivable into the custodial account within seven days of the auction, even if some of the proceeds remain uncollected. Id.
Custodial account funds may only be withdrawn to remit the net proceeds due a seller, to pay lawful charges which the market agency is required to pay, and to obtain sums due the market agency as compensation for its services. 9 C.F.R. § 201.42(d)
. The market agency must transmit or deliver the net proceeds received from the sale to the seller by the close of business on the day after the sale. § 228b(a); 9 C.F.R. § 201.43(a).
Pursuant to the PSA, all market agencies are prohibited from operating while insolvent, i.e., when current liabilities exceed current assets.4 See § 204; United States v. Ocala Live Stock Market, Inc., 861 F.Supp.2d 1328, 1331 (M.D.Fla.2012)
.
A market agency selling on commission is required to sell the livestock consigned to it “openly, at the highest available bid, and in such a manner as to best promote the interest of each [seller].” 9 C.F.R. § 201.56(a)
. To that end, such a market agency must offer livestock for sale in an open and competitive manner to other available buyers before allowing any of its owners, officers, or employees to purchase consigned livestock. 9 C.F.R. § 201.56(b)
. When an owner, officer, or employee of the market agency purchases consigned livestock, he or she must do so at a price higher than the highest available bid. Id. After an owner, officer, or employee of the market agency purchases consigned livestock, the market agency must disclose on the account of sale the name of the buyer and the nature of the relationship between the buyer and the market. 9 C.F.R. § 201.56(d).
Furthermore, market agencies are required to “establish, observe, and enforce just, reasonable, and nondiscriminatory regulations and practices in respect to the furnishing of stockyard services, and every unjust, unreasonable, or discriminatory regulation or practice is prohibited and declared to be unlawful.” § 208(a). Market agencies must establish rates and charges that are “just, reasonable, and nondiscriminatory.” § 206. A schedule of rates and charges for stockyard services, known as the tariff, must be filed with the Secretary and a copy posted for public inspection at the stockyard. § 207(a). Rates and charges may be changed after giving ten days' notice to the Secretary and to the public, or in less than ten days with the Secretary's consent based on peculiar circumstances. § 207(c).
It is unlawful for a stockyard owner, market agency, or dealer “to engage in or use any unfair, unjustly discriminatory, or deceptive practice or device in connection with ... the receiving, marketing, buying or selling on a commission basis or otherwise ... of livestock.” § 213(a). After notice and full hearing, the Secretary may assess a civil penalty of up to $11,000 per violation. § 213(b); 7 C.F.R. § 3.91(b)(6)(iv)
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HPL, doing business as Producers Livestock Auction, is a limited liability company located in Portales, New Mexico. HPL is registered with the Secretary as a dealer and as a market agency.5 Defendant Michael Flen, an electrician by...
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