United States District Court, D. Arizona
Rosemary Marquze, Judge
2, 2018, Plaintiff Ocean Garden Products Inc.
(“Plaintiff” or “OG”) initiated a
lawsuit against Defendants Blessings, Inc.
(“Blessings”) and David Mayorquin
(“David”), alleging breach of contract and other
claims (Doc. 1 in case number CV-18-322) (the
“Contract Action”). The operative pleadings in
the Contract Action are Plaintiff’s First Amended
Complaint (Doc. 86), which adds Abraham Mayorquin and ADAB
Ocean Harvest, S. De R.L. De C.V. (“ADAB Mexico”)
as defendants; Defendants’ Answer to First Amended
Complaint and Counterclaims (Doc. 92); and Plaintiff’s
Answer to the Counterclaims (Doc. 109).
22, 2019, Plaintiff initiated a separate lawsuit against
Defendants David, David’s wife Amanda Lopez Vergara,
Abraham, Abraham’s wife Viviana Lopez, ADAB Mexico,
ADAB Ocean Harvest LLC (“ADAB Tucson”), and
Pacific Ocean Harvest S. De R.L. De C.V. (“Pacific
Ocean Harvest”), alleging claims under Arizona’s
Uniform Fraudulent Transfer Act (“UFTA”), A.R.S.
44-1004, et seq. (Doc. 1 in case number CV- 19-284)
(the “UFTA Action”). The parties jointly moved to
consolidate the Contract Action and UFTA Action (Doc. 144),
and the Court granted consolidation on June 24, 2019 (Doc.
146). The operative pleadings in the UFTA Action are
Plaintiff’s Amended Complaint (Doc. 154), which adds
Blessings as a defendant, and Defendants’ Answer to the
Amended Complaint (Doc. 206).
pending before the Court is Plaintiff’s Motion for
Preliminary Injunction. (Doc. 149.) Defendants filed a Response
(Doc. 150) and a Supplemental Response (Doc. 158), and
Plaintiff filed a Reply (Doc. 167). The Court held an
evidentiary hearing on July 23, 2019 and August 22-23, 2019.
(Docs. 177, 194, 202.) Based upon an oral stipulation of the
parties at the July 23, 2019 hearing, the Court entered
temporary injunctive relief pending resolution of
Plaintiff’s Motion for Preliminary Injunction. (Doc.
is an Arizona corporation located in Tucson. It is wholly
owned by brothers David and Abraham, and David serves as its
President and Chief Executive Officer (“CEO”).
Blessings began as a seafood distributor for local
restaurants in Tucson. In 2006, it purchased a processing
facility located on Highland Avenue. In approximately 2008,
Blessings began selling processed shrimp to national chains
such as Costco and Trader Joe’s.
around 2011 or 2012, Blessings set up ADAB Mexico to process
shrimp for Blessings as a maquiladora. ADAB Mexico is a
Mexican company located in Nogales, Mexico. Like Blessings,
it is wholly owned by David and Abraham. A maquiladora
agreement dated May 31, 2012 is signed by David on behalf of
both Blessings and ADAB Mexico. According to David, in 2012
and 2013, Blessings paid ADAB Mexico processing fees
calculated pursuant to the maquiladora agreement as ADAB
Mexico’s total operating expenses plus a 6.5% markup.
Starting in 2014, Blessings began paying ADAB Mexico
processing fees calculated as 80 cents per pound of shrimp
processed by ADAB Mexico. Defendants have not introduced an
addendum to the original maquiladora agreement or any
subsequent maquiladora agreements.
2012, David learned that Blessings was the subject of a
criminal investigation involving sea cucumber exportation,
and he retained criminal defense counsel. According to
Blessings’ audited 2012 financial statements, the
company’s net income in 2012 was $1, 038, 162 and it
paid processing fees totaling $674, 699 to ADAB Mexico. The
financial statements reflect a shareholder loan receivable of
August 28, 2013, Blessings executed an unsecured promissory
note in favor of OG for the principal sum of $1, 500, 000.
According to Celso Lopez, the Chief Financial Officer of OG,
Blessings was supposed to use the loan to purchase domestic
shrimp to be processed by Blessings and sold to OG at a
discounted price, with the discount credited against the
balance of the loan. According to David, the loan was used
not only to purchase domestic shrimp but to purchase
equipment and supplies, and to hire and train personnel, in
service of the domestic shrimp program. Blessings delivered
$470, 000 worth of shrimp pursuant to the loan agreement, but
$240, 000 worth was returned to Blessings due to quality
issues. After accounting for the returned shrimp, the unpaid
balance owed under the 2013 note was $1, 273, 633.40.
According to Blessings’ audited 2013 financial
statements, the company suffered net losses of $980, 822 in
2013 and paid processing fees of $1, 924, 367 to ADAB Mexico.
It had $7, 490, 535 in total assets and $6, 856, 667 in total
liabilities. The financial statements reflect a shareholder
loan receivable of $740, 968.
unpaid balance of the 2013 promissory note was subsumed into
a June 1, 2014 unsecured promissory note executed by
Blessings in favor of OG. Blessings did not pay the amount
due under the 2014 note. Blessings also began defaulting on
invoices for shrimp delivered to Blessings by OG during the
2014-2016 time frame. According to Blessings’ audited 2014
financial statements, the company’s net income in 2014
was $236, 541, and it paid processing fees of $1, 156, 874 to
ADAB Mexico. It had $9, 942, 012 in total assets and $9, 179,
497 in total liabilities. The financial statements reflect a
shareholder loan receivable of $823, 417. For the first time,
the financial statements also reflect a note receivable from
ADAB Mexico in the amount of $1, 312, 270, of which $480, 997
was classified as a current asset based on management’s
averment that this portion of the note was expected to be
repaid in the near future.
approximately 2015, Blessings lost Trader Joe’s as a
customer after Trader Joe’s rejected shrimp delivered
by Blessings due to high sodium levels. The shrimp rejected
by Trader Joe’s had been processed by Blessings after
being purchased from OG. OG took possession of the shrimp for
a period of time before asking Blessings to attempt to resell
it. The parties dispute responsibility for the quality issues
that caused Trader Joe’s to reject the shrimp.
November 18, 2015, Blessings sent OG a proposed repayment
plan containing provisions for the repayment of
Blessings’ debt to OG. Blessings alleges that the
proposal resulted in a modification agreement which OG later
breached; OG denies entering into any modification agreement.
The record does not contain a written modification agreement
signed by Blessings and OG, although it contains some
conflicting evidence regarding whether the parties operated
for a time pursuant to the provisions of Blessings’
November 18, 2015 proposal. According to Blessings’
draft 2015 financial statements, the company’s net
income in 2015 was $15, 392, and it paid processing fees of
$480, 997 to ADAB Mexico. It had total assets of $7, 767, 322
and total liabilities of $7, 033, 030. The financial
statements reflect a loan receivable from ADAB Mexico of $2,
677, 683, classified entirely as a current asset, and a
shareholder loan receivable of $838, 417.
January 2016, Lance Leonard replaced Javier Corella as the
CEO of OG. Later that year, OG sued Blessings in Arizona
state court. OG obtained a default judgment in that lawsuit,
but the judgment was later overturned on the grounds of
insufficient service and OG voluntarily dismissed the case.
Also in the year 2016, Trader Joe’s sued Blessings in
arbitration for delivering contaminated shrimp. By the end of
2016, the loan receivable from ADAB Mexico had increased to
approximately $2.99 million.
2017, David and Blessings were publicly indicted on charges
arising from the sea-cucumber investigation. Costco,
Blessings’ largest customer, stopped doing business
with Blessings after the criminal indictment was publicly
reported. Plaintiff and Defendants dispute whether OG was
aware of the criminal investigation prior to the indictment
becoming public. Ultimately, David pled guilty to a
misdemeanor and Blessings pled guilty to a felony, and they
were ordered to pay a criminal fine of nearly $1 million. In
order to separate himself from David after the indictment,
Abraham founded ADAB Tucson, which resells shrimp, and
Pacific Ocean Harvest, which processes shrimp for ADAB
Mexico no longer does any business with Blessings; however,
it continues to operate and process food products for other
customers. According to David, ADAB Mexico’s profits in
2018 were approximately $600, 000. Although David and
Blessings’ controller Erin McGinnis at one point
concluded that the ADAB Mexico loan was uncollectable, ADAB
Mexico has recently made irregular payments on the loan.
no longer processes shrimp but continues to operate as a
seafood distributor for local restaurants in Tucson. Although
Blessings’ current finances are not clear from the
record presently before the Court, it appears that the
company is insolvent and has been since at least 2017. David
testified at the preliminary injunction hearing that, if
Ocean Garden were to obtain a judgment for $2.4 million in
this case, neither David, Blessings, nor ADAB Mexico would be
able to pay the judgment. OG seeks damages of over $5 million
in these consolidated actions. (See Docs. 86, 154.)
owns the processing facility on Highland Avenue, subject to a
mortgage. It also owns a vacant lot on Thornydale Road, free
and clear of a mortgage. The Highland Avenue and Thornydale
properties are encumbered by a National Bank of Arizona loan
and by the criminal fine owed to the United States
government. David and Abraham each own a residential property
in Tucson, subject to mortgages. Defendants have not
disclosed or presented evidence showing how much equity
exists in these four properties.
seeks preliminary injunctive relief with respect to the UFTA
Action. As an initial matter, Defendants argue that Plaintiff
should have sought a writ of attachment under A.R.S. §
12-1521 rather than a preliminary injunction. However,
Defendants concede that Arizona’s UFTA expressly
provides for the remedy of injunctive relief. Furthermore,
the Court finds that the determination of whether to grant
preliminary injunctive relief in this matter is governed by
federal, rather than state, law.
court may issue a preliminary injunction on notice to the
adverse party pursuant to Federal Rule of Civil Procedure 65.
In determining whether to grant preliminary injunctive
relief, the Court considers: (1) whether the movant is likely
to succeed on the merits; (2) whether the movant is likely to
suffer irreparable harm in the absence of preliminary
injunctive relief; (3) the balance of equities between the
parties; and (4) the public interest. Winter v. Nat. Res.
Def. Council, Inc., 555 U.S. 7, 20 (2008). The Ninth
Circuit follows a “sliding scale” approach to
preliminary injunctions. Alliance for the Wild Rockies v.
Cottrell, 632 F.3d 1127, 1131-32 ...