UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK
October 29, 2007
SAGE FRUIT COMPANY, LLC, A WASHINGTON LIMITED LIABILITY COMPANY, PLAINTIFF,
MICHAIL NASH CORP. D/B/A NASH EXPRESS PRODUCE, A NEW YORK CORPORATION; MORIS MICHAEL NASHONOV (NASH), AN INDIVIDUAL;
SERGEY NASHONOV, AN INDIVIDUAL; AND MICHAEL NASHONOV, AN INDIVIDUAL, DEFENDANTS.
The opinion of the court was delivered by: Charles P. Sifton (electronically signed) United States District Judge
MEMORANDUM OPINION AND ORDER
Plaintiff Sage Fruit Company brings this action against defendants Michail Nash Corp., d/b/a Nash Express Produce ("Nash Express"), Moris Michael Nashonov ("Nash"), Sergey Nashonov ("Sergey"), and Michael Nashonov ("Michael"). In the Complaint, plaintiff alleges that defendants have violated the provisions of the Perishable Agricultural Commodities Act of 1930 ("PACA"), 7 U.S.C. § 499a et seq. Specifically, plaintiff seeks a declaration that it is entitled to relief under 7 U.S.C. §§ 499e(c)(3) and (4)*fn1 , and enforcement of payment from PACA trust assets, pursuant to 7 U.S.C. § 499e(c)(5). Plaintiff also alleges (1) violations of PACA's requirement that Nash Express maintain PACA trust assets, 7 U.S.C. § 499b(4),*fn2 (2) PACA's requirement that Nash Express make full payment promptly, id., (3) breach of contract, (4) breach of fiduciary duty, (5) conversion and unlawful retention of PACA trust assets, and (6) fraudulent transfer. Plaintiff commenced this action on October 9, 2007, and on October 10, 2007, upon plaintiff's ex-parte submissions, I signed a Temporary Restraining Order. Now before this court is plaintiff's motion for a preliminary injunction, on which I held a hearing on October 29, 2007*fn3 . Plaintiff also seeks to consolidate the trial on the merits with the hearing on the preliminary injunction. Upon the findings of fact and conclusions of law set forth below, plaintiff's motion for a preliminary injunction is granted against defendants and its motion to consolidate is denied.
The following findings of facts are derived from the underlying allegations in plaintiff's Complaint, affidavits submitted by plaintiff in connection with this motion, and from the proceeding before the undersigned on October 29, 2007. There are no factual disputes between the parties requiring an evidentiary hearing. See Davis v. New York City Housing Authority, 166 F.3d 432, 437-38 (2d Cir. 1999).
Plaintiff is engaged in the business of buying and selling wholesale quantities of perishable agricultural commodities*fn4 in interstate commerce, and is a PACA licensee. Defendant Nash Express is a New York Corporation with its principal place of business in Brooklyn, New York. Defendant Nash is the President of Nash Express. Defendant Sergey is an officer, principal, and consultant of Nash Express. Defendant Michael is an officer and principal of Nash Express. Plaintiff has been doing business with Nash Express since November 2004.
Plaintiff alleges that Nash Express was a commission merchant, dealer or broker*fn5 operating subject to the provisions of PACA.*fn6 Chuck Yow, Eastern Regional Representative for plaintiff, by a supplemental declaration submitted in this matter, states that Nash Express's business consists of the buying and selling of perishable agricultural commodities. Yow has also attached exhibits to his supplemental declaration showing that Nash Express is a PACA licensee and that it specializes in various types of tomatoes, but also deals in grapes, apples, pears, oranges, and several other fruits.
Plaintiff further alleges that between February 26, 2007 and April 25, 2007, plaintiff sold to Nash Express apples, which plaintiff delivered and which Nash Express accepted.*fn7 Plaintiff alleges that $50,991.00 remains owing for the apples delivered during the period at issue.
Steve Black is a salesperson for plaintiff and was the salesperson who sold the produce at issue to Nash Express. He has also been involved in the process of attempting to recover the unpaid invoices from Nash Express. According to Black's declaration, when Nash Express's inability to satisfy its PACA trust obligations to plaintiff became apparent, he began investigating Nash Express's financial position on behalf of plaintiff. Prior to April, 2007, his primary contact at Nash Express was its President Nash. According to Black, when, in the past, Nash Express would become delinquent in payments owed to plaintiff, Black would contact Nash, who would usually bring the account to current or near current. However, in April 2007, plaintiff noticed that Nash Express became slower than usual in payment of its outstanding invoices.
Black thus began calling Nash on a weekly basis to discuss Nash Express's outstanding balance. Nash told Black on several occasions to fax an accounting of the outstanding invoices and that payment would be sent soon thereafter, but payment was never received. Chuck Yow, according to his declaration, was alerted to Nash Express's delinquency in July 2007, and, at that time, contacted Black to discuss the problem. Black apprised Yow of his efforts.
According to Black, he continued to make weekly calls to Nash from May through August 2007. Again, he was promised payment, but payment was never sent by Nash Express. In August 2007, Black called Nash to inform him that plaintiff would not sell any additional produce to Nash Express. Nash told Black that he needed to speak with his son, defendant Michael. Nash explained that he had moved to Chicago and no longer had a role with the company's current operations. Nash said Michael was out of the country but would return after two weeks. Yow also attempted to contact Nash in August 2007, by email, but Nash did not respond.
Yow followed up with a phone call in September 2007, which Nash returned. Nash told Yow essentially what he had told Black - that Yow should contact Michael, but Michael was out of the country for two weeks. According to Yow, Nash acknowledged the outstanding balance to plaintiff, but told Yow that Nash Express could not make payment as a result of losses the company suffered from damages to crops in foreign countries. Nash asked that plaintiff be patient as he needed to pay other vendors before payment could be made to plaintiff. Yow said such an arrangement was unacceptable and demanded full payment. Nash said he could not make full payment at that time.
When the two weeks had passed, both Black and Yow attempted to contact Michael, but their phone calls were not returned. Black tried Nash again, who reiterated that Black should speak to Michael, and informed Black that Michael had not yet returned. Yow also contacted Nash. According to Yow, Nash again admitted that Nash Express could not pay plaintiff for the invoices at issue. Nash explained that since his son, Michael, had taken over Nash Express many vendors had not received payment and that he was flying to New York to reorganize the company.
Following his last call with Nash, Black increased his calls to Michael, trying to reach him two or three times per week. Michael never returned Black's calls. Black made several additional attempts to contact both Nash and Michael towards the end of September and the beginning of October. Neither returned his calls.
On October 1, 2007, however, Michael called Yow concerning the outstanding invoices. Michael admitted that the company could not pay plaintiff and requested that plaintiff "work with" Nash Express so that he could stabilize the company. Michael guaranteed that payment would be made once Nash Express was profitable again. Yow said he could not commit to any agreement until he conferred with others at plaintiff. Michael then advised Yow that he intended to close Nash Express because a vendor had filed a lawsuit to recoup damages resulting from Nash Express's poor quality product and overpricing.
Yow consulted with plaintiff's COO, Steve Clement, regarding Michael's offer to postpone legal action. Clement told Yow to reject the offer, and to notify both Nash and Michael that plaintiff would be filing a lawsuit. Yow left several messages for both Nash and Michael, but neither returned his calls.
According to Black, Nash Express owes $50,991.00 for invoices dating back to February 26, 2007; invoices corroborating this amount are attached to Black's declaration.
Plaintiff moves for a preliminary injunction enforcing the PACA statutory trust, 7 U.S.C. § 499e(c)(4), by segregating all trust assets*fn8 of Nash Express, and an Order consolidating the hearing on the preliminary injunction with trial on the merits.
a. Preliminary Injunction
Pursuant to Federal Rule of Civil Procedure 65(a), a preliminary injunction is appropriate if the movant shows (a) irreparable harm and (b) either (1) likelihood of success on the merits or (2) sufficiently serious questions going to the merits to make them a fair ground for litigation and a balance of hardships tipping decidedly toward the party requesting the preliminary relief. Gold v. Feinberg, 101 F.3d 796, 800 (2d Cir. 1996).
Plaintiff has demonstrated irreparable harm. "[T]he irreparable harm . . ., as in other PACA cases, is the risk that defendant will have dissipated the PACA trust without paying the plaintiff, leaving the plaintiff 'out of luck and out of money.'" Ger-Nis Int'l, Inc., v. FJB, Inc., 2007 WL 656851 (S.D.N.Y. March 1, 2007) (quoting Horizon Mktg. v. Kingdom Int'l, Ltd., 244 F. Supp.2d 131, 140 (E.D.N.Y. 2003)). Plaintiff has submitted declarations from two employees which state that defendants Nash and Michael said Nash Express did not have sufficient funds to pay plaintiff, that Nash Express might be shut down, and that Nash Express needed to pay other vendors before plaintiff. Thus, I find that there is a clear danger that the trust assets may be dissipated by Nash Express in an attempt to settle significant debts with parties other than plaintiff. Therefore, there is a likelihood of irreparable harm and injunctive relief is appropriate to preserve the status quo.
Additionally, plaintiff has demonstrated a likelihood of success on the merits. Plaintiff sold apples to Nash Express and apples are encompassed within the definition of the perishable agricultural commodities. Plaintiff is also a PACA licensee. Defendants do not dispute that Nash Express is subject to the PACA trust mechanism and Nash Express is itself a PACA licensee. Plaintiff has submitted invoices which contain the language necessary to perfect its trust interest by notice. See 7 U.S.C. § 499(e)(3) and (4); 7 C.F.R. § 46.46(f)(3)(i). And the invoices, together with the declarations of Black and Yow, demonstrate that the invoices have not been paid in full. Accordingly, based on the above findings of fact and conclusions of law, and as set out in the accompanying order, the motion for a preliminary injunction*fn9 against defendants is granted, requiring defendants to segregate perishable agricultural commodities, all inventories of food or other products derived from perishable agricultural commodities, and any receivables or proceeds from the sale of such commodities or products, including any assets purchased or otherwise acquired with such proceeds, from October 27, 2004,*fn10 from other corporate assets, and enjoining defendants from dissipating such assets.*fn11
b. Motion to Consolidate Trial on the Merits
Rule 65(a)(2) provides:
Before or after the commencement of the hearing of an application for a preliminary injunction, the court may order the trial of the action on the merits to be advanced and consolidated with the hearing of the application. Even when this consolidation is not ordered, any evidence received upon an application for a preliminary injunction which would be admissible upon the trial on the merits becomes part of the record on the trial and need not be repeated upon the trial. This subdivision (a)(2) shall be so construed and applied as to save to the parties any rights they may have to trial by jury.
As defendants have not appeared in this case, I do not believe it is appropriate to consolidate the preliminary injunction hearing with the trial on the merits.
For the reasons set forth above, and as set forth in the accompanying order, plaintiff's motion for a preliminary injunction is granted and plaintiff's motion to consolidate the hearing with the trial on the merits is denied. The Clerk is directed to transmit a copy of the within to all parties and to the assigned Magistrate Judge.