1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 SAN JOSE DIVISION 7 A AND A PRODUCE, INC., Case No. 5:21-cv-09985-EJD 8

ORDER DENYING EX PARTE

9 Plaintiff, APPLICATION FOR TEMPORARY v. RESTRAINING ORDER; SETTING 10 BRIEFING SCHEDULE AND FELIPES MARKET, INC., et al., HEARING DATE FOR MOTION FOR 11 PRELIMINARY INJUNCTION

12 Defendants. Re: Dkt. No. 13 13

14 15 Plaintiff, A and A Produce, Inc. (“A and A Produce”), is a trust beneficiary of Defendant, 16 Felipe’s Market, Inc. (“Felipe’s”), under the Perishable Agricultural Commodities Act of 1930, as 17 amended, 7 U.S.C. §499e(c) (“PACA”). Before the Court is A and A Produce’s ex parte 18 application for a temporary restraining order (“TRO”) to enjoin Defendant, Felipe’s Market, Inc. 19 (“Felipe’s”), “its agents, employees, successors, banking institutions, attorneys, and all other 20 persons in active concert or participation with them, including Defendants, Felipe Diaz Ayala 21 (‘Felipe Diaz’) and Saira Diaz, from using, consuming or otherwise dissipating trust assets under 22 PACA, or making payment of any PACA trust asset to any creditor, person, or entity until further 23 order of this Court, payment to A and A Produce, or upon A and A Produce’s agreement.” ECF 24 13-1 at 3. A and A Produce also filed a motion for preliminary injunction. See ECF 14. For the 25 reasons discussed below, the Court finds that issuance of a TRO without notice is not justified, 26 and therefore A and A Produce’s application for an ex parte TRO is DENIED. The Court will 27 Case No.: 5:21-cv-09985-EJD

ORDER DENYING EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER;

1 conduct a hearing on A and A Produce’s motion for a preliminary injunction on Thursday, January 2 13, 2022 at 9:00 a.m. 3 I. BACKGROUND 4 A and A Produce, a California corporation, is in the business of buying and selling 5 wholesale quantities of perishable agricultural commodities, or “Produce,” in interstate 6 commerce. ECF 13-1 at 3. Felipe’s is a California corporation with its principal place of business 7 in Sunnyvale, California. Id. At all times pertinent to the allegations in A and A Produce’s 8 Complaint, Felipe’s was, and is, a retail “dealer” of Produce subject to PACA. 7 U.S.C. § 9 499a(b)(6); 7 C.F.R. § 46.2(m). Id. 10 PACA protects sellers of perishable agricultural goods by requiring a merchant, dealer, or 11 retailer of perishable produce to hold in trust proceeds from the sale of the perishable produce, and 12 food derived from that produce, for the benefit of all unpaid suppliers. 7 U.S.C. § 499e(c)(2). 13 “The trust automatically arises in favor of a produce seller upon delivery of produce and is for the 14 benefit of all unpaid suppliers or sellers involved in the transaction until full payment of the sums 15 owing has been received.” C & E Enters., Inc. v. Milton Poulos, Inc. (In re Milton Poulos, Inc.), 16 947 F.2d 1351, 1352 (9th Cir. 1991). 17 A and A Produce has been selling Produce to Felipe’s since 2010. Spagnoli Decl., ¶7.1 In 18 2021, Felipe’s purchased more than $230,000.00 worth of Produce from A and A Produce. Id. ¶ 19 8. Between October 1, 2021, and November 11, 2021, A and A Produce sold and shipped Produce 20 to Felipe’s in interstate commerce, for which Felipe’s agreed to pay A and A Produce 21 $149,652.25. Id. ¶ 9. Felipe’s received and accepted the Produce from A and A Produce without 22 objections. Id. ¶ 10. Each of A and A Produce’s invoices for the Produce included the required 23 statutory statement to preserve its rights under PACA. Id. ¶ 11. Felipe’s has failed to pay for the 24

25 1 Felipe’s is one of three retail markets owned or operated by Defendant Felipe Diaz Ayala. Id. ¶ 26 17. The other two markets are Foothill Produce, Inc. in Los Altos, California, and Cupertino Market, Inc. in Cupertino, California. Id. A and A Produce sells Produce to all three markets. Id. 27 Case No.: 5:21-cv-09985-EJD

ORDER DENYING EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER;

1 Produce and currently owes A and A Produce $149,652.25, exclusive of attorneys’ fees, costs, and 2 interest. Id. ¶¶ 16, 28. 3 A and A Produce contacted Felipe’s numerous times regarding the failure to pay and 4 learned that Felipe’s was having difficulty paying creditors. Id. ¶ 25. In December of 2021, 5 Defendant Saira Diaz offered to pay A and A Produce less than the full amount owing if A and A 6 Produce would agree to issue a “credit” for the remaining unpaid amounts. Id. ¶ 26. A and A 7 Produce responded that it could not agree to issue any credit for unpaid balances. Id. 8 A and A Produce believes Felipe’s has failed to maintain sufficient trust assets to satisfy its 9 PACA trust obligations. Id. ¶ 29 (“Based on these facts and my personal experience in the 10 Produce industry and my conversations with Saira Diaz and Anita, I believe that Felipe’s has 11 failed to maintain sufficient trust assets to satisfy its PACA trust obligations to A and A 12 Produce.”). A and A Produce suspects that Felipe’s is dissipating assets subject to the PACA trust 13 and is unable to satisfy A and A Produce’s PACA trust claim. Id. ¶ 30. A and A Produce seeks a 14 TRO because “[u]nless Felipe’s is forced to satisfy its non-produce debts and other operating 15 expenses out of its profit margin, and not by dipping into the PACA trust assets,” Felipe’s will 16 continue to dissipate the PACA trust. Id. ¶ 31. 17 II. STANDARDS 18 The standard for issuing a TRO is identical to the standard for issuing a preliminary 19 injunction. See New Motor Vehicle Bd. of Cal. v. Orrin W. Fox Co., 434 U.S. 1345, 1347 n.2 20 (1977). A party seeking a preliminary injunction must show: (1) that he is likely to succeed on the 21 merits; (2) that he is likely to suffer irreparable harm in the absence of preliminary relief; (3) that the 22 balance of equities tips in his favor; and (4) that an injunction is in the public interest. Winter v. 23 Natural Res. Def. Council, Inc., 555 U.S. 7 (2008); Amer. Trucking Assocs., Inc. v. City of Los 24 Angeles, 559 F.3d 1046, 1052 (9th Cir. 2009). The Court may issue a temporary restraining order 25 without written or oral notice only if “specific facts in an affidavit or a verified complaint clearly 26 show that immediate and irreparable injury, loss, or damage will result to the movant before the 27 Case No.: 5:21-cv-09985-EJD

ORDER DENYING EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER;

1 adverse party can be heard in opposition” and “the movant’s attorney certifies in writing . . . why 2 it should not be required.” Fed. R. Civ. P. 65(b)(1-2). 3 III. DISCUSSION 4 A and A Produce seeks a TRO on an ex parte basis, asserting that giving notice “will only 5 provide Felipe’s with advance warning that an order may be entered, thereby providing time and 6 opportunity for Felipe’s to further dissipate trust assets by paying personal liabilities or non-trust 7 creditors.” ECF 13-1 at 10. The Court recognizes that dissipation of PACA trust assets 8 constitutes a form of irreparable harm, and that courts in this district have granted TROs on an ex 9 parte basis. See e.g., Chong’s Produce, Inc. v. Meshaal, No. C 09–4787, 2009 WL 3298175 10 (N.D. Cal. Oct. 9, 2009). In this case, however, A and A Produce has not clearly shown that 11 immediate dissipation of trust assets will occur before Felipe’s has an opportunity to respond to A 12 and A Produce’s application. At most A and A Produce have a suspicion that trust assets are 13 being dissipated. See Spagnoli Declaration, ¶ 30. 14 The Ninth Circuit has cautioned that there are very few circumstances justifying the 15 issuance of an ex parte TRO. Reno Air Racing Assoc., Inc. v. McCord, 452 F.3d 1126, 1131 (9th 16 Cir. 2006). Such circumstances include, for example, where notice is impossible because the 17 identity of the adverse party is unknown or a known party cannot be located in time for a hearing. 18 Id. This exception is inapplicable in this case. A and A Produce has a long-standing business 19 relationship with Felipe’s. 20 In cases when notice could have been given, courts have recognized “a very narrow band 21 of cases in which ex parte orders are proper because notice to the defendant would render fruitless 22 the further prosecution of the action. Id. (quoting Amer. Can Co. v. Mansukhani, 742 F.2d 314, 23 322 (7th Cir. 1984)). A and A Produce has made no attempt to show that notice to Felipe’s would 24 render further prosecution of this case fruitless. Accordingly, the Court finds that notice must be 25 given to Felipe’s before the Court will consider the merits of A and A Produce’s application for a 26 TRO. To reduce the potential risk of immediate dissipation of trust assets, the Court will expedite 27 Case No.: 5:21-cv-09985-EJD

ORDER DENYING EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER;

1 the hearing on A and A Produce’s motion for preliminary injunction. 2 || IV. CONCLUSION 3 For the reasons stated above, the Court ORDERS as follows: 4 (1) A and A Produce’s ex parte application for a TRO is DENIED. 5 (2) A and A Produce shall immediately serve Defendants with the instant Order. Further, 6 Plaintiff shall effect service no later than close of business on Friday, January 7, 2022. 7 (3) Felipe’s shall file a response to A and A Produce’s motion for preliminary injunction no 8 later than 7:00 a.m. on Monday, January 10, 2022. 9 (4) Any reply must be filed no later than 7:00 a.m. on Tuesday, January 11, 2022. 10 (5) The hearing on Plaintiff’s motion for preliminary injunction shall be held via ZOOM on 11 Thursday, January 13, 2022, at 9:00 a.m. g 12

13 IT IS SO ORDERED.

14 || Dated: January 5, 2022 15 aD.

EDWARD J. DAVILA

17 United States District Judge 18 19 20 21 22 23 24 25 26 27 Case No.: 5:21-cv-09985-EJD

ORDER DENYING EX PARTE APPLICATION FOR TEMPORARY RESTRAINING ORDER;

28 || SETTING BRIEFING SCHEDULE AND HEARING DATE FOR MOTION FOR

PRELIMINARY INJUNCTION