This is the second of two posts concerning 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). An extensive review of this case is warranted, because it shows how an unpaid seller of perishable agricultural commodities (produce) should proceed in pursuing its defaulting buyers. As mentioned in this author’s previous entry discussing this case, a more complete victory to an aggrieved PACA plaintiff could hardly be imagined.
Initially, of interest to unpaid produce sellers is the Court’s brief discussion of the second of the four requirements (enumerated in the author’s preceding post on this case) that a plaintiff must show in order to be entitled to a temporary restraining order or a preliminary injunction, i.e., that such plaintiff must show that there is a substantial threat of irreparable harm to the plaintiff if the injunction is not granted. Presumably, an alert defense lawyer attorney could argue that the simple fact of non-payment would not constitute “irreparable harm” because a plaintiff has available to it the remedy of procuring a money judgment; that such plaintiff has an adequate remedy at law. Therefore, the argument would go, an injunction would not be appropriate.
Addressing this argument, the Court in Yang Wu noted that “the mere fact that economic damages may be available does not always mean that a remedy at law is “adequate.” (Citing Janvey v. Alguire, 647 F.3d 585, 600 (5th Cir. 2011). As the Court observed, “Plaintiffs are likely to suffer irreparable harm without a preliminary injunction. Several federal courts have held that [PACA] trust dissipation can satisfy this [irreparable harm] factor, if, absent such relief, ultimate recovery is rendered unlikely.” (Citing four cases in support.)
This analysis should be helpful in the situation where a defendant in a PACA case argues, incorrectly, that the availability of a money judgment automatically renders injunctive relief unavailable.
In addition, the plaintiffs in Yang Wu sought to hold two companies related to the defendants, Ztao Marketplace and Ztao Group, liable, although, apparently, they were not named as buyers on the invoices. Plaintiffs argued for such extended liability using the “alter ego” theory. That doctrine, said the Court, “allows the imposition of liability of a corporation for the acts of another corporation when the subject corporation is organized or operated as a mere tool or business conduit. . . . The doctrine applies when there is such unity between corporations that the separateness of the … corporations has ceased, and holding just one corporation liable would result in injustice.”
The Court noted that courts will apply a laundry list of factors, none of which is, in and of itself, determinative, to be used in determining whether a company is an alter ego of another. These factors include, among others: (1) that one company pays the salaries and expenses of the other; (2) that one company uses the other companies’ property as its own; and (3) that the daily operations of the corporations are not kept separate.
Therefore, assuming that at least some of the above factors can be established, a plaintiff in a PACA case should consider the possibility that there may be corporations related to the defendants that can also be held liable for payment of plaintiff’s claims. Obviously, such potential expanded liability under the “alter ego” theory can be a boon to a plaintiff in cases where the defendants named on the invoices may be, or may claim to be, insolvent.