TRO, Evidentiary Hearing and Preliminary Injunction in PACA Case

The 2020 case of Yang Wu International, et. al.  v. LS & CX, LLC, et. al., Case No. 4:20-CV-312 (E.D. Tex. May 12, 2020), is especially informative and instructive to sellers of perishable agricultural commodities because it illustrates and explains the law with respect to some of the options and remedies available to sellers of produce where buyers fail to pay for same.  Because this case touches on a number of issues of use and interest to such unpaid sellers, it will be discussed in several posts.

Of course, the seller’s statutory rights and remedies derive from the Perishable Agricultural Commodities Act (“PACA”), 7 U.S.C. § 499a, et. seq.  As observed by the Court, citing Golman-Hayden Co., v. Fresh Source Produce, Inc., 217 F.3d 348, 351 (5th Cir. 2000), from the standpoint of the deadbeat buyer, “PACA is a tough law.”  Left unsaid, but obvious to readers, is the consideration that Congress, in enacting PACA, surely had in mind the national interest that favors the availability of fresh produce to the general population, and the protection of suppliers of such produce given their vulnerability due in no small part to the reality that, unlike durable good destined for consumers, their product is quickly and permanently perishable.  Among the “toughest” provisions of PACA is the requirement that, if the conditions of the statute are satisfied by the seller, the buyer must hold the inventories of such produce, and any proceeds for the sale of same, in trust for the benefit of the seller.  

In Yang Wu, the plaintiff sold perishable agricultural commodities to defendants who failed to pay plaintiff’s invoices in the total amount of $370,407.65.  (The amount claimed in the case later increased to $475,225.36.)  Initially, on application of the plaintiffs, the Court entered a temporary restraining order (TRO) without notice enjoining the defendants, for a period of fourteen days, from dissipating any trust assets.  That fourteen day period was then extended for another fourteen days.  In entering the TRO, the Court applied a common legal standard, holding that in order for a plaintiff to receive such relief, it must show: (1) a likelihood of success on the merits; (2) a substantial threat of irreparable harm; (3) that the threatened injury outweighs any harm to the defendant; and (4) that the entry of the injunction will not offend the public interest.

On an evidentiary hearing on the plaintiff’s motion for a full preliminary injunction, the Court also had little trouble finding in favor of the plaintiff on all four of the above elements.  The defendants really had no defense to the claim of non-payment.  The defendants admitted that they had the funds to cover the PACA trust, but would need access to such amounts to pay other creditors.  The payment to other creditors from the PACA trust assets would in and of itself constitute a dissipation of such trust assets, and therefore, the entry of an injunction freezing such assets was warranted.

Following the hearing, based on the facts and the law, the Court entered an injunction: (1) prohibiting the defendants and their agents from “transferring, withdrawing or in any other manner removing” PACA trust assets; (2) in the event that defendants were unable to fund the PACA trust, that defendants account to the Court for all PACA trust assets, and deposit all cash and other payment receipts with the Court until full payments of the $475,225.36 could be made; (3) granting plaintiff access to the defendants’ books and records; (4) allowing the plaintiff the right to depose the defendants’ officers and agents; (5) requiring defendants’ bank to release to plaintiff’s counsel, in confidence, its records regarding defendants’ accounts; and (6) all without requiring the plaintiff to post a bond.

A more complete victory for an unpaid seller of perishable agricultural commodities could hardly be imagined.  

In our next post regarding this case, we will take a look at, among other things, the Court’s interesting imposition of liability on certain non-buyer corporations that were related to buyer corporations.