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HORIZON MARKETING v. KINGDOM INTERN. LTD.

February 14, 2003

HORIZON MARKETING, A D/B/A OF EVANS SALES, INC., AND VENIDA MARKETING CO. PLAINTIFFS,
v.
KINGDOM INTERNATIONAL LIMITED, DONG KU RA MI CORP., MEI-CHUEN DAI A/K/A JOHN CHUEN, INDIVIDUALLY, AND KO-YU MO A/K/A GIBSON MO, INDIVIDUALLY, DEFENDANTS.



The opinion of the court was delivered by: Garaufis, District Judge

    MEMORANDUM AND ORDER
Plaintiffs, unpaid sellers of produce, move this court for a preliminary injunction, pursuant to Federal Rule of Civil Procedure 65, restraining defendants, produce buyers, from dissipating assets that are part of a trust formed under the Perishable Agricultural Commodities Act, 1930, 7 U.S.C. § 499a, et seq. For the following reasons the preliminary injunction is GRANTED as to both corporate defendants.

FACTS AND PROCEDURAL BACKGROUND

Plaintiffs Horizon Marketing ("Horizon") and Venida Marketing Co. ("Venida") are sellers of produce in interstate commerce. (Amended Complaint ("Am. Compl."), ¶ 1.) Defendants Kingdom International Limited ("Kingdom") and Dong Ku Ra Mi Corp. ("Dong") are two New York corporations which allegedly bought large amounts of fresh fruits from plaintiffs.*fn1 (See id., ¶¶ 5-8.) Defendant Ko-Yu Mo ("Mo") owns 85% of defendant Kingdom,*fn2 and 50% of defendant Dong. (See Transcript of Dec. 26, 2002 Hearing on Order to Show Cause for Preliminary Injunction ("Dec. 26 Tr."), at 4-5; Affidavit of Gibson Mo ("Mo Aff."), Exh. C.) Defendant Mei-Chuen Dai owns the remaining 15% of Kingdom.*fn3 The remaining 50% owner of Dong is non-party Jung Sook Kang.*fn4 (Mo Aff., Exh. C.)

The instant suit concerns various purchases of fruits from plaintiffs during September and October 2002. The amount plaintiffs claim is due for these purchases is $220,091.15. Plaintiffs maintain that they sold the produce to both Kingdom and Dong, believing that Dong was "a division or trade name of Kingdom." (Am. Compl., ¶¶ 5, 7.) Accordingly, they seek a preliminary injunction against both corporate defendants. Kingdom argues, however, that despite plaintiffs' belief, only Dong bought the produce and only Dong should be subject to the injunction.
The sales of produce in this case are subject to the Perishable Agricultural Commodities Act, 1930, ("PACA"), 7 U.S.C. § 499a, et seq. Under § 5(c) of PACA, 7 U.S.C. § 499e(c), buyers of produce subject to PACA are required to hold proceeds from the sale of such produce in trust for the benefit of the sellers. See 7 U.S.C. § 499e(c)(2). This is meant to ensure that sellers are paid in full from the proceeds derived from the re-sale of the produce. Under the statute, the trust is formed at the moment the produce is shipped to the buyer and remains in effect until the seller is paid in full. See 7 C.F.R. § 46.46(c)(1); In re Kornblum & Co., 81 F.3d 280, 286 (2d Cir. 1996) (agreeing with creditors' position that trust is formed upon sale of produce); Matter of Snyder, 184 B.R. 473, (D.Md. 1995). The buyer — in this case Dong or both Kingdom and Dong — therefore becomes a trustee and "has a fiduciary obligation under PACA to repay the full amount of the debt owed to the PACA beneficiary." C.H. Robbins Co. v. Alanco Corp., 239 F.3d 483, 488 (2d Cir. 2001). Buyers who dissipate or otherwise spend the proceeds of the trust without making full payment to the seller are in breach of their fiduciary duties. That much is clear. The wrinkle in this case is deciding whether Kingdom is also a buyer/trustee, or whether Dong is the only liable corporate party.*fn5
Kingdom is a New York corporation formed in November 1990. (Mo Aff., Exh. A.) While its certificate of incorporation lists New York County as the location of the corporate office, Mr. Mo testified that Kingdom shares an office with Dong at 41-25 Kissena Boulevard in Flushing, Queens, (Dec. 26 Tr. at 17-18, 31), a fact confirmed by Kingdom's bank statement, which also bears the Flushing address. Kingdom's principal place of business, 1350 Lafayette Avenue, appears to be the Hunts Point Market in the Bronx. Dong was incorporated in May 2002, and has its corporate office at 41-25 Kissena Boulevard, in Flushing, Queens. (Mo Aff., Exh. B.) It appears that while it was in business,*fn6 Dong also operated out of the Hunts Point Market, and its bank statements list 1350 Lafayette Avenue as its address. According to Mr. Mo, Kingdom is in the business of importing food, while Dong purchases produce domestically. (Mo Aff. ¶ 4.)
Mr. Mo maintains that the "parties had agreed that once Dong received it[s] PACA license that it would then be the purchaser of the commodities sold by Horizon and Venida. The fact remains that it was always Dong which purchased the product and it was always Dong which paid for the product." (Mo Aff. ¶ 6.) In support of this assertion, Mr. Mo produced checks drawn in September and October on Dong's corporate account, payable to each of the plaintiffs.*fn9 Also, Dong produced handwritten invoices to its customers, ostensibly showing that it sold the produce received from plaintiffs. (Mo Aff., Exh. H.) Thus, Kingdom urges the court not to disregard the separate corporate identity of each company, and recognize that since Kingdom "never sold those commodities. . . . never took custody of those commodities. . . . never received these commodities or received any monies derived from these commodities," it cannot be deemed a PACA trustee in this action. (Mo Aff. ¶ 11.)
Plaintiffs, on the other hand, maintain that when John Chuen contacted plaintiffs in the Spring, he represented that he was with Kingdom, and that plaintiffs agreed to sell only to Kingdom, relying on "Kingdom's name, Kingdom's credit references, which were checked out[, and] Kingdom's license from the USDA to transact the produce sales and purchases." (Transcript of Dec. 18, 2002 Hearing on Order to Show Cause ("Dec. 18 Tr."), at 4-5.) The invoices and bills of lading issued contemporaneously with the sales indicate that the produce was sold and delivered to Kingdom at the Bronx address, (Def. Exhs. B, C), but the invoices attached to plaintiffs' complaint and amended complaint list the buyer as "Kingdom/Dongkurami" at the Flushing address. (Am. Compl., Exhs. A, B.) Plaintiffs explain this discrepancy by acknowledging that they were asked by defendants to modify their records to indicate that Dong, rather than Kingdom, was the buyer, but rejected that request because Dong had "no credit history [and] no credit reference." (Dec. 18 Tr., at 5.) Instead, out of a desire to accommodate defendants, plaintiffs re-issued invoices for sales that had already occurred but listed both Kingdom and Dong as buyer, with the Flushing address, as designated by defendants. (Id.) Plaintiffs argue that under PACA, the trust follows the produce, and, regardless of who paid, Kingdom ordered the produce, accepted delivery of the produce, and received the proceeds of the sale of the produce. Whatever arrangement Kingdom and Dong may have had with each other is irrelevant, because as far as plaintiffs were concerned, they were dealing only with Kingdom, believing that "Dong was a division or trade name of Kingdom." (Am. Compl. ¶ 7.)
On December 11, 2002, plaintiffs filed a complaint, an application for a temporary restraining order and preliminary injunction, and a memorandum of law in support. On that date, I issued an Order to Show Cause ("Dec. 11 Order") requiring the parties to appear on December 18. On December 17, defendants filed Mr. Mo's affidavit in opposition, arguing that venue was not proper and that plaintiffs' claims against Kingdom ought to be dismissed under Rule 12(b)(6).*fn10
On December 18, 2002, the return date of the Order to Show Cause, counsel for defendants informed the court that he was representing all the defendants except Dong. Accordingly, as Dong failed to appear pursuant to my Dec. 11 Order, I issued a Temporary Restraining Order against it, and continued the hearing until December 26, 2002. I also ordered both corporate defendants to produce their financial records from July 2002 through December 2002. Prior to the December 26 hearing, defendants submitted a memorandum of law in support of their position that the corporate identity of each defendant must be kept separate and that only Dong was liable to plaintiffs. On December 26, all parties appeared, but at that time the same defense counsel represented all defendants. The court heard testimony from Mr. Mo and oral argument on the preliminary injunction application. I continued the TRO against Dong, with its consent, and reserved decision on the injunction against Kingdom.

DISCUSSION

I. Jurisdiction and Venue

The court has jurisdiction over this matter pursuant to 28 U.S.C. § 1331, because the cause of action arises under federal law, 7 U.S.C. § 499a, et seq. In addition, PACA vests jurisdiction in the district courts over "actions by trust beneficiaries to enforce payment from the trust." 7 U.S.C. § 499e(c)(5).

Defendants argue that venue is not proper in this district, as all relevant events occurred in the Bronx, both corporate defendants operate their businesses in the Bronx and the produce was shipped to the Bronx.*fn11 (See Mo Aff. ΒΆ 10; Dec. 18 Tr., at 13, 30.) I previously ruled that venue was proper in the Eastern District of New York. ...


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