South Mill Mushroom, LLC v. V.I.P. Marketing, Inc.

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88 United States District Court

99 Central District of California

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1111 SOUTH MILL MUSHROOM, LLC, Case No. 2:21-cv-07200-ODW (Ex)

1122 Plaintiff, ORDER DENYING PLAINTIFF’S EX

1133 v. PARTE APPLICATION FOR

TEMPORARY RESTRAINING

1144 V.I.P. MARKETING, INC., et al., ORDER [12] AND MOTION FOR

1155 Defendants. PRELIMINARY INJUNCTION [14]

1166

1177 I. INTRODUCTION & BACKGROUND

1188 On September 8, 2021, Plaintiff South Mill Mushroom, LLC (“South Mill”)

1199 initiated this lawsuit against Defendants V.I.P. Marketing, Inc. (“V.I.P.”); Christopher

2200 Martin; Jesse Martin; and Martin Produce, Inc. South Mill sells mushrooms, and it

2211 asserts a breach of contract claim for Defendants’ failure to pay a total of

2222 $494,079.65.

2233 Because this is a suit for interstate sale of produce, the Perishable Agricultural

2244 Commodities Act of 1930 (“PACA”) applies, and South Mill’s remaining seven

2255 claims arise under PACA. Under PACA, when a seller sells qualifying produce to a

2266 buyer, a trust arises by operation of law, under which the buyer is the trustee of the

2277 produce (along with all proceeds derived therefrom) and the seller is the beneficiary.

2288 The trust lasts until the buyer renders payment. 7 U.S.C. § 499(e)(c)(2); 49 Fed. Reg.

1 at 45738. “PACA trusts are governed by traditional principles of trust law,” In re

2 Country Harvest Buffet Rests., Inc., 245 B.R. 650, 653 (B.A.P. 9th Cir. 2000), and

3 they offer produce sellers “a self-help tool that will enable them to protect themselves

4 against the abnormal risk of losses resulting from slow-pay and no-pay practices by

5 buyers or receivers of fruits and vegetables,” 49 Fed. Reg. at 45737, 1984 WL

6 134994.

7 South Mill claims that V.I.P. has not paid for its orders and is therefore the

8 trustee of a PACA trust. On September 9, 2021, South Mill filed an ex parte

9 application for a Temporary Restraining Order (“TRO”) seeking an injunction barring

10 Defendants from “dissipating the trust assets,” that is, from selling the mushrooms or

11 from using or conveying any proceeds from sale of the mushrooms, until Defendants

12 pay South Mill the monies owed. 7 C.F.R. § 46.46(a)(2) (“‘Dissipation’ means any

13 act or failure to act which could result in the diversion of trust assets or which could

14 prejudice or impair the ability of unpaid suppliers, sellers, or agents to recover money

15 owed in connection with produce transactions.”); (Appl. TRO, ECF No. 12.) South

16 Mill also filed a related Motion for Preliminary Injunction. (Mot. Prelim. Inj., ECF

17 No. 14.) For the reasons explained below, the Court DENIES South Mill’s TRO

18 Application and Motion for Preliminary Injunction.

19 II. LEGAL STANDARD

20 A temporary restraining order is an “extraordinary remedy that may only be

21 awarded upon a clear showing that the plaintiff is entitled to such relief.” Winter v.

22 Nat. Res. Def. Council, 555 U.S. 7, 22 (2008); see Earth Island Inst. v. Carlton,

23 626 F.3d 462, 469 (9th Cir. 2010) (emphasizing plaintiffs “face a difficult task in

24 proving that they are entitled to this ‘extraordinary remedy’”). The standard for

25 issuing a temporary restraining order is “substantially identical” to that for issuing a

26 preliminary injunction. Stuhlbarg Int’l Sales Co. v. John D. Brush & Co., 240 F.3d

27 832, 839 n.7 (9th Cir. 2001).

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1 Pursuant to Federal Rule of Civil Procedure (“Rule”) 65, a court may grant

2 preliminary injunctive relief to prevent “immediate and irreparable injury.” Fed. R.

3 Civ. P. 65(b). To obtain this relief, a plaintiff must establish the “Winter” factors:

4 (1) “he is likely to succeed on the merits”; (2) “he is likely to suffer irreparable harm

5 in the absence of preliminary relief”; (3) “the balance of equities tips in his favor”;

6 and (4) “an injunction is in the public interest.” Am. Trucking Ass’ns, Inc. v. City of

7 Los Angeles, 559 F.3d 1046, 1052 (9th Cir. 2009) (quoting Winter, 555 U.S. at 20). In

8 the Ninth Circuit, the Winter factors may be evaluated on a sliding scale: “serious

9 questions going to the merits, and a balance of hardships that tips sharply towards the

10 plaintiff can support issuance of a preliminary injunction, so long as the plaintiff also

11 shows that there is a likelihood of irreparable injury and that the injunction is in the

12 public interest.” All. for the Wild Rockies v. Cottrell, 632 F.3d 1127, 1135 (9th Cir.

13 2011) (internal quotation marks omitted).

14 III. DISCUSSION

15 Between June 2021 and August 2021, South Mill and V.I.P. entered into

16 contracts for the sale of Pennsylvania mushrooms. (Decl. of Anecia Wilson (“Wilson

17 Decl.”) ¶¶ 7–8, ECF No. 12-2.) South Mill shipped the mushrooms, and V.I.P.

18 received them and now owes a balance of $494,079.65. (Id. ¶¶ 9, 16.) Although

19 South Mill may have a contract claim, it is not entitled to an immediate injunction

20 enforcing its rights in its PACA trust because it has failed to show irreparable harm

21 under the heightened standard that applies when the defendant has no notice.

22 A. Ex Parte Requirements; No-Notice Requirements

23 A party seeking ex parte relief must establish: (1) why a motion cannot be

24 calendared in a regular manner; (2) that the requesting party will be irreparably

25 prejudiced if a motion is heard in accord with regular procedures; and (3) that the

26 requesting party is without fault in creating the crisis that requires ex parte relief or

27 that the crisis was due to excusable neglect. Mission Power Eng’g Co. v. Continental

28 Cas. Co., 883 F. Supp. 488, 492 (C.D. Cal. 1995). “In other words, [an ex parte

1 application] must show why the moving party should be allowed to go to the head of

2 the line in front of all other litigants and receive special treatment.” Id.

3 “Where notice could have been given to the adverse party,” there exists only “a

4 very narrow band of cases in which ex parte orders are proper because notice to the

5 defendant would render fruitless the further prosecution of the action.” Reno Air

6 Racing Ass’n, Inc. v. McCord, 452 F.3d 1126, 1131 (9th Cir. 2006) (quoting Am. Can

7 Co. v. Mansukhani, 742 F.2d 314, 322 (7th Cir. 1984)). Thus, a party applying for ex

8 parte relief must make “reasonable, good faith efforts orally to advise counsel for all

9 other parties, if known, of the date and substance of the proposed ex parte application”

10 and must “advise the Court in writing and under oath of efforts to contact other

11 counsel and whether other counsel, after such advice, opposes the application.” C.D.

12 Cal. L.R. 7-19.1. This notice requirement may be waived only “[i]f the judge to

13 whom the application is made finds that the interest of justice requires that the ex

14 parte application be heard without notice (which in the instance of a TRO means that

15 the requisite showing under [Rule] 65(b) has been made).” C.D. Cal. L.R. 7-19.2.

16 Relatedly, Rule 65(b)(1) authorizes a court to issue a temporary restraining

17 order without notice to the adverse party only if:

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(A) specific facts in an affidavit or a verified complaint clearly show that

19 immediate and irreparable injury, loss, or damage will result to the

movant before the adverse party can be heard in opposition; and

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(B) the movant’s attorney certifies in writing any efforts made to give

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notice and the reasons why it should not be required.

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23 Fed. R. Civ. P. 65(b)(1). These restrictions are “stringent,” and the “circumstances

24 justifying the issuance of an ex parte order are extremely limited.” Reno Air Racing,

25 452 F.3d at 1131 (quoting Granny Goose Foods, Inc. v. Teamsters, 415 U.S. 423,

26 438–39 (1974)).

27 Here, the declaration of counsel submitted with the Application fails to address

28 why the Court should not require notice to Defendants. (See generally Wilson Decl.)

1 This is sufficient independent grounds for denying the application. Fed. R. Civ.

2 P. 65(b)(1)(B); C.D. Cal. L.R. 7-19.2.

3 Moreover, the relief South Mill seeks—trust enforcement without notice to

4 Defendants—is truly extraordinary. Under case law, federal rules, and local rules,

5 South Mill had to make a strong and clear showing that it would suffer irreparable

6 harm without immediate ex parte relief. As the following discussion of the Winter

7 factors makes clear, South Mill missed this mark by a wide margin.

8 B. TRO Application

9 South Mill seeks a temporary restraining order enjoining Defendants from

10 dissipating trust assets. But South Mill fails to satisfy the requirements for such relief.

11 As indicated in Cottrell, if a party altogether fails to show irreparable harm, its TRO

12 application must be denied, regardless of the other factors. 632 F.3d at 1135; Winter,

13 555 U.S. at 20. Here, South Mill has shown no irreparable harm at all, and

14 accordingly, the Court denies South Mill’s application without addressing the other

15 factors.

16 In support of its claim of irreparable harm, South Mill argues that the trust

17 assets are at risk of dissipation, and that it will suffer irreparable harm if the Court

18 does not issue an injunction enforcing the trust. (Appl. TRO 6–7.) This argument has

19 two principal flaws.

20 First, South Mill has failed to make a substantial showing that the trust assets

21 are at risk of dissipation. As evidence of dissipation, South Mill submits a single

22 email from Defendant Christopher Martin, V.I.P.’s principal:

23 As you may now know Gabe is going to move on to a different

company. . . I have said that I will be paying the debt to everyone,

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especially South Mill[]. . . . I am currently restructuring our company & I

25 am in the middle of selling a personal property so that I will make a lump

26 sum payment. . . I tried to come up with different ideas & formulas so

that I could make this work for everyone, including keeping the

27 mushroom department, but now that isn’t going to happen. I will ask for

28 a few weeks to get my finances in order & will be paying off the VIP

debt with some personal funds. . . . I will make good on this, but I just

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ask for a little time to do so

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3 I’ll be in touch to let you guys about the payments as soon as we get

close to the escrow date. . . .

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5 Thank you.

6 (Wilson Decl. ¶ 26.) Based on this single email, South Mill asserts that V.I.P. has

7 failed to maintain sufficient PACA Trust assets.

8 South Mill’s showing is wholly insufficient to demonstrate that trust assets are

9 or risk being dissipated. The email says nothing about the whereabouts of the

10 mushrooms or the proceeds therefrom. The email also says nothing about V.I.P.’s or

11 the other Defendants’ ability to pay. Indeed, South Mill’s ex parte papers are

12 generally devoid of any indication of exactly what type of dissipation South Mill

13 fears. The Court cannot say that South Mill has made the required strong showing of

14 dissipation when South Mill failed to take the foundational step of specifying exactly

15 what kind of dissipation it fears. See Frio Ice, S.A. v. Sunfruit, Inc., 918 F.2d 154,

16 159, n.8 (11th Cir. 1990) (instructing district courts to enforce PACA trusts only

17 “[u]pon a showing that the trust is being dissipated or threatened with dissipation”);

18 Johnson v. Couturier, 572 F.3d 1067, 1085 (9th Cir. 2009) (“A party seeking an asset

19 freeze must show a likelihood of dissipation of the claimed assets, or other inability to

20 recover monetary damages, if relief is not granted.”)

21 Moreover, even if South Mill could demonstrate dissipation, the question here

22 is whether South Mill’s harm is irreparable, that is, whether South Mill has an

23 adequate remedy at law. Where the harm arises from nonpayment, as here, South Mill

24 can be made completely whole with money damages. Moss v. Infinity Ins. Co., 197 F.

25 Supp. 3d 1191, 1203 (N.D. Cal. 2016) (“Where . . . a plaintiff can seek money

26 damages if she prevails on claims for breach of contract . . . she has an adequate

27 remedy at law.”) Thus, the dissipation of trust assets threatens irreparable harm only

28 if there is an additional showing that Defendants are insolvent.

1 South Mill does not make this showing. South Mill relies on only two pieces of

2 || evidence: the above email, along with an additional assertion that Defendant Jesse

3 || Martin and “another business partner” are soon to retire. (Wilson Decl. § 25.) But the

4|| mere fact a person is retiring from a company says nothing about that company’s

5 || financial state. Thus, South Mill fails to show that any defendant is insolvent or that

6 || an award of money damages will otherwise be inadequate to make South Mill whole.

7 || Indeed, Christopher Martin’s email indicates exactly the opposite: that Defendants are

8 | solvent and intend to pay the debt.

9 Because South Mill makes no showing of irreparable harm, immediate

10 || injunctive relief is inappropriate, and the Court need not consider the remaining

11 || Winter factors. Accordingly, the Court DENIES South Mill’s TRO Application.

12 || South Mill’s Motion for Preliminary Injunction is also ex parte and is judged by the

13 || same legal standard, and the court DENIES that motion as well.

14 IV. CONCLUSION

15 For the foregoing reasons, the Court finds that South Mill has not met the high

16 || burden of establishing that it is entitled to injunctive relief without notice to

17 || Defendants. Accordingly, the Court DENIES South Mill’s ex parte Application for a

18 | Temporary Restraining Order (ECF No. 12). The Court also DENIES South Mill’s

19 | ex parte Motion for Preliminary Injunction (ECF No. 14), without prejudice to

20 || renewing the Motion with proper notice.

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22 IT IS SO ORDERED.

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24 September 10, 2021 ss

25 fy

x Gadi

7 OTIS D. WRIGHT, II

08 UNITED STATES DISTRICT JUDGE