United States v. Ocala Live Stock Mkt., Inc.

Decision Date11 May 2012
Docket NumberCase No. 5:12–CV–167–OC–10TBS.
Citation861 F.Supp.2d 1328
PartiesUNITED STATES OF AMERICA, Plaintiff, v. OCALA LIVE STOCK MARKET, INC., Michael Yeomans, and Tobitha Yeomans, Defendants.
CourtU.S. District Court — Middle District of Florida

OPINION TEXT STARTS HERE

Andrew L. Nolan, Department of Justice, Washington, DC, for Plaintiff.

Stephen C. Bullock, Brannon, Brown, Haley & Bullock, PA, Lake City, FL, for Defendants.

ORDER GRANTING PLAINTIFF'S DISPOSITIVE MOTION FOR PRELIMINARY INJUNCTION AND PRELIMINARY INJUNCTION

WM. TERRELL HODGES, District Judge.

The Packers and Stockyards Act regulates the conduct of packers, swine dealers, live poultry dealers, stockyard owners, market agencies, and dealers. 7 U.S.C. §§ 181–229c. Under the Act, all market agencies 1 are prohibited from operating while insolvent (defined under the Act as occurring when current liabilities exceed current assets). See7 U.S.C. § 204, 9 C.F.R. § 203.10. In addition, the Secretary of Agriculture has promulgated regulations that require market agencies to deposit all proceeds from the sale of consigned livestock into a separate bank account designated as a “Custodial Account for Shippers' Proceeds.” See9 C.F.R. § 201.42. Custodial account funds cannot be mingled with other operating funds, and withdrawals are permitted from the custodial account only to remit the net proceeds due to a consignor or to pay other lawful marketing charges. See9 C.F.R. § 201.42; Cobb v. Yeutter, 889 F.2d 724, 729–30 (6th Cir.1989). The market agency is further obligated to ensure that the custodial account is never overdrawn, and is always in balance. See9 C.F.R. § 201.42.

The United States of America, on behalf of the Secretary of Agriculture, has filed a Complaint for declaratory and injunctive relief against the Defendants, a market agency and its joint owners, alleging that they have repeatedly operated while insolvent, and have violated several of the Act's implementing regulations concerning the handling of their custodial account (Doc. 1). The United States seeks a preliminary injunction against the Defendants enjoining them from all operations until various administrative proceedings are concluded (Doc. 2).

The Defendants filed an answer to the Complaint (Doc. 15), and the Court heard argument on the motion for preliminary injunction on April 19, 2012 (Doc. 16). The Court has reviewed the Parties' submissions, including their supplemental briefs and the United States proposed injunction (Docs. 17–18, 21), and has considered the Parties' arguments.

The Court concludes that the motion for preliminary injunctive relief shall be granted.

Background

The facts, as set forth in the United States' Complaint, attached declarations, and submitted documentation, are as follows. (Docs. 1, 2–1, 21–2). Defendant Ocala Livestock Market, Inc., (Ocala Livestock) is a corporation located in Ocala, Florida operating as a market agency which sells livestock in commerce on a commission basis. Defendants Tony and Tobitha Yeomans are the corporate officers and joint owners of Ocala Livestock, and are the persons responsible for the direction, management, and control of the company. All of the Defendants are subject to the provisions of the Packers and Stockyard Act and its implementing regulations.

On April 3, 2010, Ocala Livestock filed with the Secretary its 2009 Annual Report of Dealer or Market Agency Selling on Commission. In the 2009 Annual Report, Ocala Livestock reported a custodial account shortage of $69,516.30 as of December 31, 2009, and also reported that its current liabilities exceeded its current assets by $144,313.14. Based on this disclosure, the Eastern Regional Office of the Packers and Stockyards Program, Grain Inspection, Packers and Stockyards Administration (“GIPSA”) sent a Notice of Violation letter to Ocala Livestock and requested that the Defendants file a Special Report by August 31, 2010.2

On August 19, 2010 GIPSA received Ocala Livestock's Supplemental Balance Sheet Special Report, which disclosed that Ocala Livestock's current liabilities exceeded its current assets by $29,346.00 as of July 30, 2010. GIPSA later received Ocala Livestock's Status of Custodial Bank Account of Shippers' Proceeds Special Report, which showed an overage of $967.53 in the custodial account as of July 30, 2010.

Based on the information in these Special Reports, Karen Collins, a senior auditor with GIPSA in Atlanta, Georgia, conducted an onsite investigation of the status of Ocala Livestock's custodial account and its financial condition during the weeks of October 4, 2010 and October 18, 2010. Ms. Collins reviewed bank account records, bank statements, outstanding check lists, deposit slips, copies of cancelled checks, purchase and sales invoices, accounts receivable lists, sales summaries, accounts payable, notes payable, and line of credit history. Ms. Collins' investigation showed that as of July 30, 2010, Ocala Livestock's custodial account actually had a shortage of $23,673.74, and that current liabilities exceeded current assets by $298,106.39. The investigation further showed that as of October 4, 2010, the custodial account had a shortage of $216,608.02, and Ocala Livestockwas insolvent by $302,433.31. Ms. Collins also discovered that the Defendants were misusing custodial account funds to make payments on Ocala Livestock's line of credit.3

Ocala Livestock's 2010 Annual Report of Dealer or Market Agency Selling on Commission listed a custodial account shortage of $18,539.46 and an insolvency of $151,687.80 as of December 31, 2010.4 On July 14, 2011, the Eastern Regional Office received Ocala Livestock's Status of Custodial Bank Account for Shippers' Proceeds Special Report, in which Ocala Livestock self-reported a custodial account overage of $209.67 as of May 31, 2011. GIPSA, however, subsequently determined that the custodial account actually had a shortage of $17,452.75 as of May 31, 2011.5

On September 14, 2011, Nilsa Ramos Taylor, a Resident Agent with GIPSA, received an anonymous phone call that Ocala Livestock had issued the caller a check that could not be cashed due to insufficient funds.6 Based on this anonymous tip, Ms. Collins and another GIPSA auditor, Erica Nelson, conducted a follow up investigation of Ocala Livestock from September 19–30, 2011. The auditors reviewed the same categories of documentation that Ms. Collins reviewed in her first investigation, this time focusing on the time period February 1, 2011 through October 4, 2011. The investigation determined that as of September 21, 2011: (1) Ocala Livestock's current liabilities exceeded its current assets by $357,951.08; (2) Ocala Livestock was operating with a custodial account shortage of $86,425.66; and (3) the Defendants were continuing to misuse their custodial account by permitting their bank to withdraw fees for insufficient funds from the account on nine (9) separate occasions, by issuing a check to Tobitha Yeomans out of the account funds, and by using custodial funds to make payments on a line of credit and to pay property taxes.

On October 7, 2011, the Secretary of Agriculture issued an administrative complaint against the Defendants alleging numerous violations of the Act, including: (1) operating while insolvent on two occasions, (2) willfully violating the solvency requirements of 7 U.S.C. § 213(a); (3) willfully failing to properly maintain a custodial account on at least two occasions; and (4) willful misuse of the custodial account by the Yeomans (Doc. 1, Ex. A). The administrative complaint requests that an order be issued requiring the Defendants to cease and desist their violations of the Act and its regulations, suspend the Defendants as registrants under the Act, and assess civil penalties. The administrative proceedings are ongoing, with a hearing set to commence before an Administrative Law Judge on May 22, 2012.7

Ocala Livestock claims that it has always been solvent, has never misused its custodial account, and has always operated in accordance with the Act and its regulations. Instead, the Defendants argue that the purported insolvency claimed by the United States is the result of faulty accounting methodology utilized by GIPSA. The Defendants further claim that every consignor of livestock who has engaged in transactions with Ocala Livestock has received timely payment in full. While the Defendants have not submitted any evidence to support these contentions, the United States has not refuted the claim that all consignors have been timely paid in full.

During oral argument, the Defendants acknowledged that they obtained a $240,000 promissory note line of credit with Florida Citizens' Bank in Ocala, Florida on June 25, 2010, as well as an $80,000 bond, which the Defendants argue are used to ensure their solvency and to prevent any shortages in the custodial account.8 The Defendants' line of credit operates solely as a “sweep account” to fill in any temporary shortages in the custodial account, and to ensure timely and full payment to all consignors of livestock. Typically, according to the Defendants, a few days pass between payment to a consignor from the custodial account and receipt by the Defendants of funds from the buyer (and the buyer's check clears), and it is during this “gap period” that the line of credit fills in the shortage.9 When the Defendants receive proceeds from the sale of consigned livestock, the bank transfers the funds from the custodial account back into the line of credit. By using this method, if a person were to take a “snapshot” of the custodial account balance at the end of the day, it might show a shortage which the line of credit would cover overnight, resulting in a positive balance in the custodial account by noon the next day.

The Defendants secured the line of credit with two certificates of deposit totaling $240,000, and the Defendants further claim the United States improperly failed to take the certificates of deposit into account as a...

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    ...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 h......
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