United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 20, 2007 Decided April 6, 2007
No. 06-1199
COOSEMANS SPECIALTIES, INC., ET AL.,
PETITIONERS
v.
DEPARTMENT OF AGRICULTURE AND
UNITED STATES OF AMERICA,
RESPONDENTS
On Petition for Review of an Order of the
Department of Agriculture
Stephen P. McCarron argued the cause and filed the briefs
for petitioners Coosemans Specialties, Inc. and Eddy C. Creces.
Martin Schulman argued the cause for petitioner Daniel F.
Coosemans.
Stephen M. Reilly, Attorney, U.S. Department of
Agriculture, argued the cause for respondents. With him on the
briefs were James Michael Kelly, Deputy General Counsel, and
Margaret M. Breinholt, Assistant General Counsel.
Before: SENTELLE, RANDOLPH and BROWN, Circuit Judges.
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Opinion for the Court filed by Circuit Judge SENTELLE.
SENTELLE, Circuit Judge: Wholesale produce merchant
Coosemans Specialties, Inc., petitions for review of a decision
by the Secretary of the Department of Agriculture to revoke the
company’s license for violations of the Perishable Agricultural
Commodities Act. The Secretary concluded that the company
violated the Act’s prohibition on unfair conduct when one of its
employees bribed a Department of Agriculture inspector. In
addition to revoking the company’s license, the Secretary also
barred two principals of the company from employment in the
industry. The company and the individuals seek review of the
Secretary’s decision, contending that bribery does not violate the
Act, and that the employment restrictions were unlawful.
Because we conclude that the agency’s actions were proper, we
deny the petitions for review.
I.
The Perishable Agricultural Commodities Act, 7 U.S.C. §§
499a - 499s (“PACA” or the “Act”), was enacted in 1930 to
regulate interstate and foreign commerce in fresh fruits and
vegetables. The Act authorizes the agency to create a system for
inspecting produce. Id. § 499n(a). It requires merchants to
obtain licenses from the Secretary of the Department of
Agriculture (“USDA” or “Secretary”), and subjects licensees to
a number of requirements. Id. §§ 499b, 499c(a), 499e, 499i.
Licensees who violate the Act may find their licenses suspended
or revoked, and individuals affiliated with violators may be
excluded from industry employment. Id. § 499h.
Petitioner Coosemans Specialties, Inc. (“CSI” or the
“Company”), is a New York produce wholesaler whose PACA
license was originally issued in 1986. The Company operates
out of Hunts Point Terminal, a wholesale produce market in the
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Bronx, New York. At all times relevant to this matter, CSI had
three principals, all of whom were part owners: Daniel F.
Coosemans, president and founder; Eddy C. Creces, secretary,
treasurer, and general manager; and Joe Faraci, vice president.
The perishable produce that arrives at Hunts Point often
travels some distance between the supplier and a buyer, such as
CSI. As a result, produce may arrive in a condition worse than
expected. If the buyer then asks for a price reduction, the
producer is at a disadvantage, because it has no way of knowing
whether to trust the buyer’s representations about the condition
of the produce. The USDA’s inspection process is intended to
level the playing field by providing the faraway producer with
an independent evaluation of the produce’s condition so he can
be assured that the price he receives is fair. A buyer, upon
receipt of nonconforming goods, may request an inspection. An
agency inspector reviews the produce and issues an official
certificate assessing its condition that can help the producer and
buyer renegotiate the price. After their transaction is complete,
however, the inspection certificate is of little use in subsequent
transactions. If the initial buyer is a wholesaler like CSI, it sells
the produce to another buyer who is typically able to personally
inspect the produce at Hunts Point.
This inspection system has been subject to abuse. For two
decades, corrupt USDA inspectors and buyers at Hunts Point
participated in a scheme of illegal payments. An inspector who
received a bribe might furnish a falsified certificate indicating
that the produce’s condition was worse than it actually was. The
buyer would use that certificate to negotiate a lower price with
the supplier. Once he paid the supplier, the buyer could resell
the produce for a price that reflected the produce’s actual
condition. In this way, a buyer who bribed inspectors for this
purpose could increase his profit margin to the detriment of the
supplier. Additionally, some inspectors who had accepted
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bribes permitted those companies to jump to the front of the line
for inspections, thereby delaying the inspections of their
competitors. Produce being perishable, buyers who had to wait
for inspections were likely to receive lower prices when the
goods were eventually resold.
In 1999, one of the Hunts Point inspectors, William Cashin,
was caught taking bribes. After his arrest, he agreed to
cooperate with investigators. He conducted inspections from
April until August 1999 while wearing audio and/or video
recording devices to document the bribes he received. During
this period, he reported that he received fourteen bribes from Joe
Faraci – CSI’s vice president – both to hasten inspections and to
falsify the resulting certificates in CSI’s favor. Faraci was
charged with eight counts of bribery of a public official,
subsequently pled guilty to one count, and was imprisoned and
fined. In light of these events, the Secretary filed a complaint
against CSI on August 16, 2002, alleging that the Company,
through Faraci’s actions, had violated the implied duty clause of
PACA’s unfair practices provision. The Secretary also filed
complaints against Eddy Creces and Daniel Coosemans
individually, alleging that they were responsibly connected to
CSI at the time the violations occurred.
The Company and both individuals denied the allegations
and sought agency review. The cases were consolidated and
heard in late 2003 before an Administrative Law Judge, who
concluded that the Company’s license should be revoked and
that Creces and Coosemans, as “responsibly connected” persons,
should be subject to the employment restrictions. The parties
appealed to the Judicial Officer (“JO”), to whom the Secretary
has delegated final authority in adjudicative proceedings. See 7
C.F.R. § 2.35. The JO affirmed the ALJ’s initial decision in a
decision and order issued April 20, 2006, finding in particular
that in exchange for Faraci’s bribes, Cashin would “falsify”
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USDA inspection certificates by, inter alia, “increasing the
percentage of defects” and “changing the temperatures of the
load.” In re Coosemans Specialties, Inc., Dkt. No. D-02-0024,
2006 WL 1135512 (USDA). On June 13, 2006, CSI and the
individual petitioners filed petitions before this Court seeking
review of the Secretary’s decision. CSI disputes the Secretary’s
interpretation of PACA’s “implied duty” clause as
encompassing a duty not to pay bribes. The individual
petitioners challenge the Secretary’s determination that they
were subject to the employment restrictions as persons
“responsibly connected” to CSI. The decision and order of the
JO was stayed pending our ruling.
II.
A.
When reviewing an interpretation of a statute by an agency
charged with the administration of that statute, we apply the
two-step Chevron framework. Chevron U.S.A. Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837 (1984). If the
meaning of the statute is unambiguous, we must give effect to
the clear congressional intent. Id. at 842-43. If, however, the
statutory language is ambiguous, we will uphold the agency’s
interpretation as long as it is not “arbitrary, capricious, or
manifestly contrary to the statute.” Id. at 844. The USDA is
entrusted to administer PACA, and therefore its interpretations
are entitled to deference under Chevron. See id.
The Secretary’s basis for revoking CSI’s license is that the
Company, through Faraci, violated the implied duty clause of
PACA. That provision reads, in relevant part:
It shall be unlawful in or in connection with any
transaction in interstate or foreign commerce . . . [f]or
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any commission merchant, dealer, or broker to make, for
a fraudulent purpose, any false or misleading statement
in connection with any transaction . . . or to fail or
refuse truly and correctly to account and make full
payment promptly in respect of any transaction . . . or to
fail, without reasonable cause, to perform any
specification or duty, express or implied, arising out of
any undertaking in connection with any such
transaction; or to fail to maintain the trust as required
under section 499e(c) of this title. . . .
7 U.S.C. § 499b(4) (emphasis added).
CSI argues that the implied duty clause cannot fairly be
read to include a duty not to bribe USDA inspectors. To do so
runs contrary to a number of principles of statutory
interpretation. We disagree. Initially, we note that Congress’s
language in this subsection is extremely broad. The word “any”
appears no fewer than three times in the specific clause at issue,
modifying the words “undertaking,” “transaction” and “duty.”
Id. The breadth and ambiguity of the key phrase as well – “any
specification or duty, express or implied” – contemplates a wide
range of behavior. See G&T Terminal Packaging Co. v. Dep’t
of Agric., 468 F.3d 86, 96 (2d Cir. 2006) (“G&T”); cf. Duties of
Licensees, 7 C.F.R. § 46.26 (noting that, because it is
“impracticable to specify in detail all of the duties,” conduct
specified in the regulations is not exhaustive). Implied duties,
by their nature, would not be spelled out in a contract or
otherwise; they are given meaning by agency gap-filling. See
JSG Trading Corp. v. Dep’t of Agric., 235 F.3d 608, 614 n.8
(D.C. Cir. 2001) (“JSG Trading II”) (“Given the substantial
ambiguity in § 499b(4), it is the Department’s function, not ours,
to define offenses under that provision.”), quoted in G&T, 468
F.3d at 96 (noting that, since the “statutory language plainly
leaves undelineated what implied duties and specifications a
7
PACA licensee might be required to bear,” it is the “province of
the Secretary . . . to fill in these gaps”). This is especially true
if the term may be better fleshed out through application of the
law to specific cases and their facts, rather than by drafting an
exhaustive list of all hypothetical conduct that would constitute
a violation. See INS v. Aguirre-Aguirre, 526 U.S. 415, 425
(1999) (noting that an agency should be accorded Chevron
deference “as it gives ambiguous statutory terms concrete
meaning through a process of case-by-case adjudication”
(internal quotation omitted)); cf. G&T, 468 F.3d at 97 (noting
that “the expansiveness” of the implied duty clause “suggests
that Congress intended to grant the Secretary broad leeway to
address the infinite variety of facts and circumstances that might
surround a PACA violation”). In light of these considerations,
we conclude that the implied duty clause is ambiguous.
We turn next to step two of Chevron, in which we consider
whether the agency’s construction is unreasonable. See
Chevron, 467 U.S. at 842-45; 5 U.S.C. § 706(2)(A). The section
in which the implied duty clause appears is labeled “unfair
conduct,” and begins with the language “It shall be unlawful in
or in connection with any transaction in interstate or foreign
commerce . . . .” 7 U.S.C. § 499b. The section goes on to
address specific types of dishonest or irresponsible conduct,
such as failing to fulfill contract terms or misrepresenting
material facts to another party. Id. § 499b(1)-(3), (5)-(7). The
paragraph containing the implied duty clause also prohibits
misrepresentations, late payments and failures to comply with
other provisions of the Act designed to ensure financial
responsibility of licensees. Id. § 499b(4). Petitioners argue that,
since the paragraph and section deal with conduct between two
parties to a particular transaction, the implied duty clause does
not reach conduct relating to a third party, such as an inspector.
Therefore, they argue, CSI’s conduct toward an inspector – not
another merchant – cannot form the basis for a violation of the
8
implied duty clause or any other part of the unfair practices
provision.
We and other circuits have upheld the Secretary’s
construction of the implied duty clause as including a
prohibition on commercial bribery. In those cases, one party to
a transaction violates a duty to the other party when it secretly
bribes the latter’s agents. Commonly, a seller bribes employees
of a buyer in order to ensure that the buyer remains a customer
of the seller. See, e.g., JSG Trading II, 235 F.3d at 610-11
(affirming the Secretary’s description of “a duty of produce
sellers not to corrupt agents and employees of their buyers”);
JSG Trading Corp. v. Dep’t of Agric., 176 F.3d 536, 543 (D.C.
Cir. 1999) (“JSG Trading I”) (affirming a construction of the
implied duty clause to include commercial bribery); Sid
Goodman & Co. v. Dep’t of Agric., 945 F.2d 398 (4th Cir. 1991)
(per curiam) (unpublished table decision), available in 1991 WL
193489, at *3 (accepting as reasonable the Secretary’s
construction of the clause as imposing an “implied duty to deal
fairly with other members in the industry,” and that such duty is
violated by commercial bribery); cf. G&T, 468 F.3d at 97
(noting that, in light of the statutory purposes, “we can hardly
conceive of a duty more clearly implicated than the obligation
of recipients not to make side-payments to these inspectors”).
Although these cases arise under statutory law rather than
the common law of contracts, the principle of contract law that
requires parties to engage in honest dealing appears to have
influenced how the statute was interpreted. For example, in JSG
Trading I, we emphasized the JO’s finding in Goodman that the
payments were made without the knowledge of the employers,
echoing a key factor in the mistake of fact doctrine. 176 F.3d at
542. In Goodman itself, the Fourth Circuit stated that the duty
extended to one’s competitors, even though they were not
involved in the transactions at issue. 1991 WL 193489, at *4.
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The bribes were a violation of the Act because each licensee has
“an implied duty to deal fairly with its competitors and by
paying kickbacks, Goodman’s competitors were held at an
unfair advantage.” Id.; see also JSG Trading I, 176 F.3d at 545
(discussing, in the context of the implied duty clause, whether
the “marketplace is disturbed”); In re Tipco, Inc., 953 F.2d 639
(4th Cir. 1992) (per curiam) (unpublished table decision),
available in 1992 WL 14586, at *2 (describing the duty
breached by commercial bribery as, in the JO’s words, a “duty
of fair dealing”).
The principle of honest dealing is also apparent in cases
arising under the common law of contracts. For example, in
Koam Produce, Inc. v. DiMare Homestead, Inc., 329 F.3d 123,
127 (2d Cir. 2003), the court reviewed the Secretary’s reparation
award to a party who was overcharged as a result of falsified
inspection certificates that the other party had obtained by
bribery. The court affirmed the award on the basis of the
doctrine of mistake, holding that the seller’s reliance on the
integrity of USDA inspections constituted a mistake of fact that
adversely affected it. It noted that the mistake resulted from the
informational advantage the buyer enjoyed over the seller, and
that the buyer was at fault for not informing the seller of that
information. Id. at 128; cf. Produce Place v. Dep’t of Agric., 91
F.3d 173, 177 (D.C. Cir. 1996) (holding that the false or
misleading statement clause in § 499b(4) was violated when the
buyer knowingly misrepresented the condition of the produce to
the seller). These cases are consistent with the commercial
bribery cases in concluding that one party breaches its duty of
honest dealing when it seeks to benefit from concealing its
illegal conduct that affected the contract price.
We similarly conclude that the Secretary’s decision to
construe the “implied duty” clause as imposing a duty to engage
in honest dealing – which includes a duty not to bribe USDA
10
inspectors – is reasonable. It is consistent with the purposes of
the Act as understood by many courts over the years: to protect
producers and other merchants from dishonest and irresponsible
conduct. See, e.g., JSG Trading I, 176 F.3d at 538; G&T, 468
F.3d at 97; Chidsey v. Geurin, 443 F.2d 584, 587 (6th Cir.
1971); Rankin Sales Co. v. Morrie H. Morgan Co., 296 F.2d
113, 116-17 (9th Cir. 1961). The Company’s attempt to obtain
speedier and more favorable inspections gave it an advantage
over its sellers, who were improperly led to believe the
inspections reflected accurate, independent analyses. We see no
reason why merchants’ duties under § 499b(4) should be limited
to cases in which the unlawful conduct is visited directly upon
the other party, rather than upon a third party who has some
ability to affect the transaction. The statutory language does not
limit the applicability of § 499b(4) to conduct in a transaction;
rather, it extends to conduct “in connection with” a transaction.
We hold that the agency’s interpretation of the “implied duty”
clause is reasonable.
B.
As a result of its conclusion that CSI violated PACA, the
Secretary revoked the Company’s license. Petitioners advance
a number of arguments why this sanction was unlawful.
Generally speaking, this Court will not overturn an agency’s
choice of sanction unless it is “unwarranted in law” or “without
justification in fact.” See Norinsberg Corp. v. Dep’t of Agric.,
47 F.3d 1224, 1227-28 (D.C. Cir. 1995) (citing Butz v. Glover
Livestock Comm’n Co., 411 U.S. 182, 185-86 (1973)). As this
Court recently noted, “[w]e will not lightly disturb the
Department’s choice of remedy under a statute committed to its
enforcement, especially given the Department’s superior
knowledge of the industry PACA regulates.” JSG Trading II,
235 F.3d at 617.
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When the Secretary determines that a licensee “has violated
any of the provisions of section 499b,” “the Secretary may . . .
by order, suspend the license of such offender for a period not
to exceed ninety days, except that, if the violation is flagrant or
repeated, the Secretary may, by order, revoke the license of the
offender.” 7 U.S.C. § 499h(a). If, as here, the violative conduct
can be sanctioned in a number of different ways under the
statute, the USDA may choose the appropriate sanction by
“examining the nature of the violations in relation to the
remedial purposes of the regulatory statute involved, along with
all relevant circumstances, always giving appropriate weight to
the recommendations of the administrative officials charged
with the responsibility for achieving the congressional purpose.”
In re S.S. Farms Linn County, Inc., 50 Agric. Dec. 476, 497
(1991).
In reviewing these factors, the USDA noted that bribery
undermines PACA’s remedial purpose of, inter alia, ensuring
responsible and honest dealing by merchants. CSI argues that
the agency failed to consider the mitigating circumstance of
widespread extortion by USDA agents that existed for many
years. The agency did acknowledge, however, that the
corruption at Hunts Point was a serious problem that the agency
had been battling unsuccessfully for some time. Nonetheless, it
concluded that bribery was such an egregious violation of the
Act that severe penalties were warranted in order to deter such
conduct. CSI’s conduct not only gave it a competitive
advantage, but it also increased the pressure on other merchants
to engage in bribery to remain competitive. Even though the
agency did not expressly describe the effect of the mitigating
circumstances on its decision, its discussion of the
circumstances that did impact its decision was sufficient to
explain why the corruption among its inspectors did not warrant
a lesser sanction. Cf. Frank Tambone, Inc. v. Dep’t of Agric., 50
F.3d 52, 56 (D.C. Cir. 1995) (upholding a sanction based on a
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decision and order that did not expressly mention the mitigating
factors because the JO “adequately explained why [those
factors] were insufficient to exonerate the company or to render
the imposition of any sanction inappropriate”). The Secretary’s
decision thus rested on a reasonable construction of the statute
and was consistent with its sanction policy. We have no basis
on which to disturb its choice of sanction.
C.
CSI argues that, even if revocation were appropriate, the
Secretary was required to give notice before imposing the
sanction. The Administrative Procedure Act, 5 U.S.C. § 558(c)
(“APA”), provides that, “[e]xcept in cases of willfulness,” a
license may not be revoked unless the licensee has been given
written notice and an “opportunity to demonstrate or achieve
compliance.” Id. In this context, “an action is willful if a
prohibited act is done intentionally, irrespective of evil intent, or
done with careless disregard of statutory requirements.” Finer
Foods Sales Co. v. Block, 708 F.2d 774, 778 (D.C. Cir. 1983).
The Secretary concluded that the willfulness exception applied
because Faraci’s conduct constituted a willful violation of
PACA. We agree. Even though Faraci pled guilty to one count,
the record indicates that he repeatedly made these payments
over several months. The indictment to which he pled guilty
states that he “willfully” and “knowingly” committed the act
“with intent to influence official acts.” Faraci admitted that
when he made the payments he knew it was unlawful to do so.
We have already held that the unlawful acts constituted a
violation of PACA, and prior cases put CSI on notice of that
fact. Cf. JSG Trading II, 235 F.3d at 617 (concluding that the
Secretary’s revocation of a PACA license in commercial bribery
cases provided “ample notice that commercial bribes may result
in revocation”). We thus hold that the Secretary’s conclusion
that the willfulness exception applied was supported by
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substantial evidence that Faraci acted with at least careless
disregard of the implied duty clause. APA notice, therefore, was
not necessary.
D.
The individual petitioners challenge the Secretary’s
determination that they were “responsibly connected” to CSI at
the time of the violations. This determination means that
Coosemans and Creces cannot, for a period of time, affiliate in
any way “with the business operations of a licensee, with or
without compensation, including ownership or self-
employment” without first obtaining permission from the
Secretary. 7 U.S.C. §§ 499a(10), 499h(b). “Responsibly
connected” persons include those who are “affiliated or
connected with a commission merchant, dealer, or broker as . . .
officer, director, or holder of more than 10 per centum of the
outstanding stock of a corporation.” Id. § 499a(9). Here, both
Coosemans and Creces were 33.3% owners at the beginning of
the period relevant to this matter, and became 45.5% owners in
July 1999. Each is also an officer, Coosemans as president and
Creces as secretary and treasurer.
Although Coosemans and Creces meet the definition of
“responsibly connected” persons, a 1995 amendment to the
statute permits an individual who is found to be responsibly
connected to demonstrate that he is “not responsible for the
specific violation.” H.R. REP. NO. 104-207, at 11 (1995), as
reprinted in 1995 U.S.C.C.A.N. 453, 458. That amendment
qualified the definition of “responsibly connected” by stating
that:
A person shall not be deemed to be responsibly connected
if the person demonstrates by a preponderance of the
evidence that the person was not actively involved in the
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activities resulting in a violation of this chapter and that the
person either was only nominally a partner, officer, director,
or shareholder of a violating licensee or entity subject to
license or was not an owner of a violating licensee or entity
subject to license which was the alter ego of its owners.
7 U.S.C. § 499a(b)(9).
Even before Congress added this provision to the statute,
this Court recognized an alter ego exception to the “responsibly
connected” determination that is identical to PACA’s current
provision. See Norinsberg v. Dep’t of Agric., 162 F.3d 1194,
1199 (D.C. Cir. 1998). We held that the “alter ego” exception
applied to “cases in which the violator, although formally a
corporation, is essentially an alter ego of its owners, so
dominated as to negate its separate personality.” Id. at 1197
(internal quotation omitted). A petitioner who was not a true
owner of such a corporation would be spared the consequences
of the responsibly connected determination. The amendment
enacted as section 499a(b)(9) codifies this exception. This
provision is plainly not applicable here because there is no claim
that CSI is an alter ego rather than a formal corporation.
Petitioners are required to “demonstrate[] by a preponderance of
the evidence” that they fit within the nominal or alter ego
exceptions. 7 U.S.C. § 499a(b)(9). As the Secretary reasonably
concluded, petitioners have failed to meet this burden. We
therefore affirm the Secretary’s determination that Coosemans
and Creces were responsibly connected to CSI and subject to the
employment restrictions.
Despite petitioners’ arguments to the contrary, we can find
no other reason why subjecting petitioners to the employment
restrictions is contrary to congressional intent. The use of
absolute language in § 499h(b) describing the scope of the
employment restrictions, the broad definition of employment to
15
include “any affiliation,” and the inclusion of a specific
exception for persons who make a certain showing – all militate
against judicially created exceptions. Id. § 499a(b)(10)
(emphasis added); cf. Siegel v. Lyng, 851 F.2d 412, 415-16 (D.C.
Cir. 1988) (relying on the first two factors, before the provision
was amended in 1995, in declining to create an exception for
non-PACA job descriptions).
III. Conclusion
We conclude that the agency’s interpretation of the
“implied duty” clause as prohibiting bribery of a USDA
inspector is reasonable, and that the “responsibly connected”
determination is not arbitrary, capricious or contrary to law. We
thus deny the petitions for review.
So ordered.