OPINION AND ORDER
WILLIAM S. DUFFEY, JR., UNITED STATES DISTRICT JUDGE.
This matter is before the Court on Defendant AgriFact Capital, LLC's ("AgriFact") "Emergency Motion Requesting Reduction in the Ordered Set Aside Amount"  ("the Motion"), which the Court construes as a Motion for Reconsideration of the Court's December 31, 2015, Order .
This is an action under the Perishable Agricultural Commodities Act ("PACA"), 7 U.S.C. §§ 499a,
CRISP Holdings, LLC d/b/a Fresh Roots ("CRISP") bought Produce on credit from wholesale Produce suppliers, including Plaintiff Classic Harvest, LLC ("Plaintiff"). CRISP then resold the Produce to its customers on credit, generating accounts receivable (the "Receivables"). Under PACA, CRISP was required to hold, in trust (the "PACA Trust"), the Produce, products derived from the Produce, and the Receivables or proceeds from the sale of the Produce (the "Trust Assets"), for the benefit of CRISP's unpaid Produce suppliers, including Plaintiff (all together, the "PACA Creditors").
On January 19, 2015, CRISP and AgriFact entered into what they characterized as a Factoring Agreement (the "Factoring Agreement"), under which CRISP
From June 15, 2015, to August 14, 2015, Plaintiff sold Produce to CRISP valued in the total principal amount of $352,110.63. (
To collect the amount owed to it, on August 25, 2015, Plaintiff filed its Complaint  asserting claims against CRISP, its principals and parent company, for breach of their duties under PACA and to enforce the PACA Trust. Plaintiff also asserts, in Count VII of its Complaint, a claim against AgriFact for conversion and unlawful retention of PACA Trust Assets. Plaintiff claims that, under the Factoring Agreement, AgriFact improperly held and collected proceeds from the Receivables which, Plaintiff claims, were subject to the PACA Trust and should have been used to pay the priority claims of CRISP's PACA Creditors.
On August 26, 2015, Plaintiff moved for a preliminary injunction to enjoin Defendants from using, consuming, or otherwise dissipating the Trust Assets, including making payments from the assets to any creditor, person, or entity. (Mot. for Prelim. Inj. ). Plaintiff also requested that the Court exercise in rem jurisdiction over the Trust Assets and establish a framework for potential PACA creditors to submit their claims and share, on a pro rata basis, in the recovery of Trust Assets. (
On September 4, 2015, the Court entered the "Consent Injunction and Agreed Order Establishing PACA Claims Procedure"  (the "September 4th Order"). The September 4th Order provides that the Court exercise exclusive in rem jurisdiction over CRISP's PACA Trust Assets, and further provides that any creditor who seeks to assert a claim to the Trust Assets must assert its claim in this action. The September 4th Order also provides: "Pending further orders of this Court, no banking institution ... or other organization/entity (including, without limitation, AgriFact ) holding funds for [CRISP] shall pay, transfer, or permit assignment or withdrawal of any existing PACA trust assets held on behalf of [CRISP]." (Sept. 4th Order ¶ 5). The September 4th Order set a hearing for October 22, 2015, to finalize and resolve any objections to the proposed PACA claims procedure.
On October 13, 2015, AgriFact filed its objections to the September 4th Order. AgriFact argued, among other things, that Paragraph 5 of the September 4th Order does not apply to the Receivables, and their proceeds, that were "factored" to AgriFact.
On October 22, 2015, the Court conducted a hearing to confirm the proposed PACA claims procedure. At the hearing, the Court considered AgriFact's objections and clarified that, under the terms of the September 4th Order, AgriFact is enjoined from transferring or otherwise expending any funds that it received from invoices it obtained from CRISP pursuant to the Factoring Agreement (the "Injunction"). The Court permitted AgriFact to file a motion to modify the Injunction, including to determine
On October 28, 2015, and November 13, 2015, AgriFact moved for reconsideration of the Injunction. (, ). AgriFact argued that it is entitled to keep the Receivables, and their proceeds, because it purchased the Receivables from CRISP, the purchase was "commercially reasonable," and it did not breach the PACA Trust. AgriFact thus contended that the Receivables, and any amounts collected from them, are not Trust Assets. AgriFact argued further that, even if the Receivables are Trust Assets, the Court should modify the Injunction to reduce the amount of funds AgriFact is enjoined from using. Plaintiff argued the Receivables were not sold to AgriFact and thus they remained PACA Trust Assets, subject to the PACA Creditors' priority claims.
On December 31, 2015, the Court denied in part and granted in part AgriFact's Motions for Reconsideration of the Injunction. The Court found that the Factoring Agreement did not function as a true sale of the Receivables to AgriFact, and because they remained Trust Assets, the Receivables and their proceeds were required to be made available for payment first to CRISP's unpaid PACA Creditors, including Plaintiff. (Dec. 31st Order at 25-26). The Court thus concluded that Plaintiff showed a substantial likelihood of success on the merits of its claim to recover Trust Assets from AgriFact. The Court also found (i) that Plaintiff, and the other PACA Creditors, will suffer irreparable harm in the absence of the Injunction, including because the facts support that Trust Assets have been dissipated; (ii) that, in view of CRISP's closing, the threatened injury of being unable to recover the Trust Assets is substantial and outweighs the potential harm to AgriFact; and (iii) that, because the PACA trust is intended to provide statutory protection for unpaid Produce supplies, the protection of Trust Assets in the form of the Injunction serves the public interest. (
On January 5, 2016, AgriFact moved for reconsideration of the Court's December
On January 14, 2016, the Court confirmed the PACA claims procedure proposed in the September 4th Order, as modified by the Court's October 23, 2015, Scheduling Order . ().
A district court has discretion to revise or reconsider interlocutory orders at any time before final judgment has been entered.
To be eligible for preliminary injunctive relief under Rule 65 of the Federal Rules of Civil Procedure, a movant must establish each of the following elements: (1) a substantial likelihood of success on the merits; (2) that irreparable injury will be suffered if the relief is not granted; (3) that the threatened injury outweighs the harm the relief would inflict on the non-movant; and (4) that entry of the relief would serve the public interest.
In its Motion, AgriFact correctly observes that, at the time the Court issued its December 31st Order, the Court was not aware that AgriFact had significantly less than $1.6 million in cash on hand, regardless of the source of the funds. This is because the parties failed to identify the amount of funds, and specifically, the amount of CRISP PACA Trust Assets, currently in AgriFact's possession. Instead, the parties focused on whether the Receivables, and their proceeds, remained Trust Assets after they were factored. AgriFact's litigation position — that the Injunction did not apply to AgriFact because the Factoring Agreement resulted in a "sale" of the Receivables, and thus AgriFact never "held" any Trust Assets — obscured the issue AgriFact raises now as a basis for reconsideration.
In this case, the Court is exercising in rem jurisdiction over the CRISP PACA Trust Assets, including the Trust Assets under CRISP's control, or held by a third party, such as AgriFact. (Sept. 4th Order at 3 & ¶¶ 1-3). The Injunction applies only to enjoin the transfer or use of CRISP PACA Trust Assets. To the extent AgriFact commingled, in its Operating Account, CRISP PACA Trust Assets with funds from its other customers, the record now is that AgriFact "created a second, separate, account into which it [transferred from the Operating Account] the $115,265.58 in known and identifiable CRISP PACA Trust Assets." (Reply at 3). Plaintiff does not argue, and it does not appear, that AgriFact currently has any CRISP PACA Trust Assets in its possession, including in the Operating Account, other than the $115,265.58 segregated in the separate account it created.
Likelihood of Success on the Merits
AgriFact does not challenge the Court's conclusion that Plaintiff has shown a substantial likelihood of success on the merits of its claim to recover Trust Assets from AgriFact, and the Court finds that the first element is satisfied.
There is no evidence to show that AgriFact is actively dissipating its assets such that Plaintiff and the other PACA creditors will suffer irreparable harm, including by being unable to recover from AgriFact, if all of the funds in AgriFact's possession are not enjoined. The second element is not satisfied here.
Threatened Injury Outweighs Harm
The Court also finds that the threatened injury to Plaintiff and the PACA creditors of being unable to recover from AgriFact does not outweigh the harm AgriFact will suffer if it is enjoined from using any funds in its Operating Account. Because the Operating Account now consists only of funds obtained from AgriFact's customers other than CRISP, these funds are likely subject to the other customers' PACA trusts. Enjoining the transfer or use of these funds could cause AgriFact to breach the PACA trusts of its other customers and significantly impact AgriFact's relationship with its customers, and its ability generally to conduct its business.
Finally, the Court concludes that enjoining all of the funds remaining in AgriFact's Operating Account would not serve the public interest. The PACA trust is intended to provide statutory protection for unpaid Produce suppliers.
In evaluating the four (4) preliminary injunction factors, the Court finds that Plaintiff and the PACA Creditors are likely to succeed on the merits of their claims, and the first factor is met. The Court concludes, however, that (i) Plaintiff and the PACA Creditors will not suffer irreparable harm if the Injunction is limited to only the CRISP PACA Trust Assets in AgriFact's possession; (ii) the threatened injury to Plaintiff and the PACA Creditors does not outweigh the potential harm to AgriFact; and (iii) enjoining all of AgriFact's funds, including non-CRISP PACA Trust Assets, would not serve the public interest.
The Court's December 31st Order is modified to reflect that AgriFact is required to maintain in a separate, segregated account, all identifiable CRISP PACA Trust Assets in AgriFact's possession.
For the foregoing reasons,
Because the CRISP PACA Trust Assets in AgriFact's possession have been reasonably identified and segregated from the commingled Operating Account, the lowest intermediate balance rule ("LIBR") does not apply. The LIBR "attempts to divide tainted and untainted money by considering, where a set amount of proceeds is deposited into an account and commingled with other funds, `the account to be "traceable proceeds" to the extent of [the deposited proceeds] as long as the account balance never falls below that sum.'"