Citicorp Industrial Credit, Inc. v. Brock

1987-06-22

Headline: Court affirms that the FLSA’s “hot goods” ban applies to secured creditors, blocking lenders from shipping or selling inventory made while workers went unpaid and restricting interstate foreclosure sales.

Holding: The Court held that Section 15(a)(1) of the FLSA applies to secured creditors who acquire collateral, so lenders may not ship or sell inventory produced while employees went unpaid.

Real World Impact:

Prevents lenders from shipping unpaid-produced inventory across state lines.
May force creditors to hold goods or pay wages before interstate sale.
Could discourage some financing of marginal producers.

Topics: worker wages, lender rights, interstate commerce, foreclosure sales, labor law

Summary

Background

A finance company (a secured lender) provided working capital to a clothing manufacturer and took a perfected security interest in the maker’s inventory and receivables. When sales fell, the lender stopped advancing funds and took possession of finished goods after the manufacturer closed. The Department of Labor found that employees had not been paid for several weeks before the closing and that the goods made then were produced in violation of the wage and overtime law. The Labor Department sought injunctions to stop shipment of those goods in interstate commerce; lower courts and the Sixth Circuit blocked shipment and applied the law to the lender.

Reasoning

The Court asked whether the statutory ban on introducing into interstate commerce goods produced in violation of minimum wage or overtime rules covers secured creditors who hold collateral. The majority pointed to the statute’s plain wording—its ban applies to “any person” and the statutory definition of person includes corporations—and to Congress’ purpose of keeping tainted goods out of interstate commerce. The Court noted only two narrow statutory exemptions (common carriers and good-faith purchasers) and concluded creditors are not exempt. The opinion explained that creditors still own the goods but may not ship them interstate unless wage violations are cured.

Real world impact

The ruling prevents lenders from selling or shipping inventory across state lines when that inventory was produced while employees were unpaid. Lenders may need to hold goods, escrow proceeds, or pay wages before interstate sale. The decision affirms the Sixth Circuit and is a final ruling on this legal question.

Dissents or concurrances

A dissent argued Congress did not intend the FLSA to reach secured creditors, favoring older circuit precedent; a concurrence joined the Court’s opinion.