UNITED STATES COURT OxF APPEALS
For the Fifth Circuit
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No. 98-60187
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ALLRED'S PRODUCE,
Petitioner,
VERSUS
UNITED STATES DEPARTMENT OF AGRICULTURE,
Respondent.
___________________________________________________
Petition for Review from the
United States Department of Agriculture
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July 1, 1999
Before POLITZ, HIGGINBOTHAM, and DAVIS, Circuit Judges.
W. EUGENE DAVIS, Circuit Judge:
Petitioner Allred's Produce ("Allred's") appeals a final order
of the Secretary of Agriculture revoking its license under the
Perishable Agricultural Commodities Act ("PACA"), 7 U.S.C. §§ 499a-
499s, for willful, repeated, and flagrant failure to make full
payment promptly to various sellers of perishable agricultural
commodities. Allred's contends that the Secretary's findings and
sanction were arbitrary and capricious, that Allred's was singled
out for selective enforcement, and that the Secretary failed to
observe various procedural requirements under the PACA. For reasons
that follow, the Secretary's order is affirmed.
I.
Before proceeding to the specific facts and issues of this
case, it is useful to review the applicable statutory and
regulatory framework. Congress enacted the PACA in 1930 "for the
purpose of regulating the interstate business of shipping and
handling perishable agricultural commodities such as fresh fruit
and vegetables." George Steinberg and Son, Inc. v. Butz, 491 F.2d
988 (2nd Cir. 1974). It was designed "to provide a measure of
control over a branch of industry which is almost exclusively in
interstate commerce, is highly competitive, and presents many
opportunities for sharp practice and irresponsible business
conduct." Zwick v. Freeman, 373 F.2d 110, 116 (2nd Cir. 1967). To
that end, the PACA establishes a strict licensing system with often
severe sanctions for violations of its requirements.
Under the PACA, every dealer of perishable agricultural
commodities is required to be licensed by the Secretary of
Agriculture. 7 U.S.C. § 499c(a). These dealers are subject to a
number of statutory requirements, the most basic of which is that
they make "full payment promptly" for all purchases of perishable
agricultural commodities. 7 U.S.C. § 499b(4). The Secretary has
defined "full payment promptly" to mean "[p]ayment for produce
purchased by a buyer, within 10 days after the day on which the
produce is accepted." 7 C.F.R. § 46.2(aa)(5). Parties may agree to
a different time limit, provided that they reduce such an agreement
to writing before entering into the transaction and maintain a copy
of the agreement in their records. 7 C.F.R. § 46.2(aa)(11). The
party claiming the existence of such an agreement has the burden of
proof. Id.
The PACA authorizes stiff penalties for violation of the
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prompt payment requirement. Upon determining that any dealer has
violated any of the PACA's statutory requirements, the Secretary
may publish the facts and circumstances of the violation and
suspend the license of the offender for up to 90 days. 7 U.S.C. §
499h(a). Moreover, if the violation is flagrant or repeated, the
Secretary may revoke the license of the offender. Id.
Alternatively, under the 1995 amendments to the PACA, the Secretary
may impose a civil penalty not to exceed $2,000 per violation or
$2,000 each day a violation continues. 7 U.S.C. § 499h(e).
II.
Allred's is a partnership formed in 1966, composed of Raymond
M. Allred and his son, Ronald D. Allred. Its sole business is the
purchase and sale of produce. Allred's has been licensed under the
PACA continuously, without suspension or revocation, since 1977.
The PACA Branch of the United States Department of Agriculture
("PACA Branch") conducted three investigations of Allred's between
1994 and 1997. The first investigation was in 1994, and resulted in
no formal complaint against Allred's. The second investigation, a
compliance review, was in February 1996. It revealed that, during
the period from May 1993 through February 1996, Allred's failed to
make full payment promptly to 19 sellers for 86 lots of perishable
agricultural commodities in the total amount of $336,153.40. Based
on these findings, PACA Branch initiated a complaint against
Allred's in July 1996. The third investigation, an audit to
ascertain whether Allred's had brought its operation into
compliance with the PACA prior to hearing, was in May 1997. The
audit revealed that $149,329.66 of the original $336,153.40
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remained unpaid. The audit further found that the firm's total
interstate and foreign commerce past due debt had risen to
$463,328.61, owed to 25 sellers for 125 lots of perishable
agricultural commodities.
A hearing was conducted before an Administrative Law Judge
("ALJ") in June 1997. Additional testimony was taken during a
telephone hearing in August 1997. The ALJ issued his decision from
the bench at the close of the hearing. He found that Allred's
Produce had failed to make full payment promptly to 19 sellers for
86 lots of perishable agricultural commodities in the amount of
$336,153.40 during the period from May 1993 through February 1996.
He further found that these violations were willful, repeated, and
flagrant. Based on these findings, the ALJ revoked the firm's PACA
license.
Allred's filed an administrative appeal of the ALJ's decision
and order in September 1997. The Judicial Officer ("JO"), acting
for the Secretary, issued a final decision and order in December
1997 adopting the ALJ's decision and adding several more
conclusions. Allred's sought reconsideration, which the JO denied
in February 1998. The JO did, however, stay his order pending the
outcome of judicial review. This appeal followed.
III.
Judicial review of the decision of an administrative agency is
narrow. Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402
(1971). The decision will be upheld unless it is "arbitrary,
capricious, an abuse of discretion, or otherwise not in accordance
with the law . . . ." 5 U.S.C. § 706(2)(A). An appellate court may
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not substitute its own judgment for that of the Secretary. American
Fruit Purveyors, Inc. v. United States, 630 F.2d 370, 373 (5th Cir.
1980). The Secretary's decision may only be overturned if it is
unwarranted in law or without justification in fact. Butz v. Glover
Livestock Comm'n Co., 411 U.S. 182, 185-86 (1973). Likewise,
judicial review of a sanction imposed under the PACA is extremely
limited. Wayne Cusimano, Inc. v. Block, 692 F.2d 1025, 1030 (5th
Cir. 1982). "The choice of sanctions imposed by the Secretary of
Agriculture, through his Judicial Officer, may not be overturned in
the absence of a patent abuse of discretion." American Fruit
Purveyors, 630 F.2d at 374.
Allred's challenges the Secretary's final order on the
following six grounds: (1) the sanction awarded was arbitrary and
capricious; (2) the findings and conclusions of the Secretary were
arbitrary and capricious; (3) Allred's was singled out for
selective enforcement; (4) the allowance of the introduction of new
claims at the agency hearing was in excess of the agency's
authority and without observance of procedure; (5) the revocation
of Allred's license was without observance of procedure because the
Secretary failed to establish that a written notice of a violation
of the PACA had been received by the Secretary prior to
commencement of PACA Branch's investigation; and (6) the allowance
and consideration of certain questionable and unreliable evidence
and testimony at the hearing was without observance of procedure.
We find these arguments unpersuasive.
A.
Allred's first argues that the Secretary's decision to impose
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the sanction of license revocation was arbitrary and capricious
under the attendant circumstances of the case and under the custom
and practice of the industry. According to Allred's, no supplier of
perishable agricultural commodities realistically expects to be
paid according to terms, and it is not uncommon for suppliers to
extend payment terms during and after transacting business to
accommodate the buyer. Thus, Allred's states, the 10-day time limit
established by the regulations is outdated and does not reflect the
real world. Revocation of Allred's license would therefore have no
deterrent effect on other buyers of perishable agricultural
commodities. Allred's also describes as abusive the Secretary's
failure to consider outside factors militating against the
imposition of sanctions, such as Allred's efforts to pay its
suppliers and the fact that no supplier of Allred's desired
Allred's to be forced out of business, and the Secretary's failure
to consider imposition of monetary penalties as an alternative
sanction. Finally, Allred's contends that the Secretary abused his
discretion by failing to consider whether the purpose behind the
sanction--deterrence of violative conduct and reducing the risk of
loss to suppliers--would be accomplished through license
revocation.
These arguments are unavailing. As noted above, we will not
overturn the Secretary's choice of sanction absent a patent abuse
of discretion. American Fruit Purveyors, 630 F.2d at 374. Our only
consideration, therefore, is "whether, under the pertinent statute
and relevant facts, the Secretary made 'an allowable judgment in
[his] choice of remedy.'" Glover Livestock, 411 U.S. at 189
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(quoting Jacob Siegel Co. v. FTC, 327 U.S. 608, 612 (1946)). We
find that the Secretary's judgment in this case was both warranted
in law and justified in fact. Where a violation of the PACA is
"flagrant or repeated," the PACA by its own terms authorizes
revocation of the violator's license. 7 U.S.C. § 499h(a). Here, the
Secretary found that Allred's violations of the PACA were both
flagrant and repeated. For reasons discussed below, we agree. Thus,
the revocation of Allred's license was well within the Secretary's
authority. We will not embark on a legislative analysis of the
PACA's relevance to modern industry practice, nor will we reexamine
the aggravating and mitigating evidence to determine whether we
would have arrived at some lesser sanction. Those are not
appropriate functions for an appellate court sitting in review of
a final administrative order. It is enough that the sanction
imposed by the Secretary was allowable under the PACA and the facts
of this case.
B.
Allred's next challenges as arbitrary and capricious the
Secretary's finding that its failures to pay were willful,
repeated, and flagrant. Allred's points out that, at the time of
the hearing, it had paid over 50 percent of the past due accounts
that were the subject of the Secretary's complaint, and was in the
process of paying all outstanding accounts under terms acceptable
to its suppliers. According to Allred's, no suppliers were
complaining about mistreatment or past due payments, and many
suppliers were continuing to supply Allred's even though Allred's
owed them money. Under these circumstances, Allred's contends, it
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cannot be said that the failures to pay were willful, repeated, or
flagrant.
We disagree. Under the regulations, "full payment promptly"
means payment within 10 days of the date on which the produce is
accepted, or payment within the time specified in writing by prior
agreement of the parties. 7 C.F.R. § 46.2(aa). Allred's does not
deny that it failed on numerous occasions to make full payment
promptly under this definition. Nor does Allred's dispute that,
during a nearly three-year period from May 1993 through February
1996, it failed to make full payment promptly on 86 lots of
perishable agricultural commodities in the total amount of
$336,153.40. In light of these undisputed facts, we can find no
error, and certainly no abuse of discretion, in the Secretary's
finding that the violations were willful, repeated, and flagrant.
Violations are "repeated" under the PACA if they are not done
simultaneously. Reese Sales Company v. Hardin, 458 F.2d 183, 187
(9th Cir. 1972); Zwick v. Freeman, 373 F.2d 110, 115 (2nd Cir.
1967). Here, the 86 violations were spread out over a period of two
years and ten months. Violations are "willful" under the PACA "if
the prohibited act is done intentionally, irrespective of evil
intent, or done with careless disregard of statutory authority."
Finer Foods Sales Co., Inc. v. Block, 708 F.2d 774, 778 (D.C. Cir.
1983). Similarly, whether violations are "flagrant" under the PACA
is a function of the number of violations, the amount of money
involved, and the time period during which the violations occurred.
See Reese, 458 F.2d at 187; Zwick, 373 F.2d at 115. Here, Allred's
violated the PACA 86 times over nearly three years for an amount
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totaling over $300,000. To describe these violations as anything
other than "willful" and "flagrant" would be to render those terms
meaningless. The Second Circuit expressed this point best in Zwick:
"[I]t is inconceivable that petitioners were unaware of their
financial condition and unaware that every additional transaction
they entered into was likely to result in another violation of [the
PACA]. It would be hard to imagine clearer examples of 'flagrant'
violations of the statute than were exemplified by petitioners'
conduct." Zwick, 373 F.2d at 115.
C.
Allred's argues next that it was singled out for selective
enforcement under the PACA's disciplinary provisions. Allred's
asserts that most complaints and disciplinary actions under the
PACA are maintained against small to mid-sized buyers rather than
institutional buyers. Thus, Allred's asserts, the brunt of
enforcement falls on the shoulders of the small to mid-sized buyer.
This argument fails on its face. Even taking all of Allred's
allegations as true, we can find no legal rationale for vacating
the Secretary's order. "[T]he conscious exercise of some
selectivity in enforcement is not in itself a federal
constitutional violation." Oyler v. Boles, 368 U.S. 448, 456
(1962). Rather, it must be shown that the selective enforcement
"was deliberately based upon an unjustifiable standard such as
race, religion, or other arbitrary classification." Id. Allred's
cites no authority, and we can find none, for the proposition that
an otherwise culpable PACA violator is shielded from the
consequences of his actions simply because the PACA is applied
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unevenly to non-institutional buyers. We agree with the Secretary
that "[the] PACA does not need to be enforced everywhere to be
enforced somewhere; and agency officials have broad discretion in
deciding against whom to institute disciplinary proceedings."
D.
Allred's concludes with three challenges to the procedural
validity of the ALJ's hearing. Each of these challenges lacks
merit.
First, Allred's contends that the ALJ impermissibly allowed
the introduction of "new claims" at the hearing. The "new claims"
to which Allred's refers are the new violations uncovered by PACA
Branch in its May 1997 audit of Allred's. Allred's argues that the
admission of these new claims at the hearing without amendment of
the complaint forced Allred's to respond to allegations without due
process of law and substantially and irreparably injured its
ability to present evidence to respond to the new claims.
We disagree. The final order of the Secretary makes clear that
Allred's was sanctioned solely for the 86 violations alleged in the
Secretary's original complaint, not for the additional violations
uncovered in the May 1997 audit. The "new claims" evidence was
actually nothing more than evidence of the current indebtedness of
Allred's, which was relevant to the question of relief from license
revocation. Under Department of Agriculture policy, a dealer who
otherwise faces license revocation may escape that sanction if it
can show "(i) that it has made full payment of the transactions
alleged in the Complaint, and (ii) [that] such payment was not made
by 'robbing Peter to pay Paul." In re S W F Produce Co., 54 Agric.
10
Dec. 693, 700 (1995) (citing In re The Caito Produce Co., 48 Agric.
Dec. 602, 629-42 (1989)). The May 1997 audit revealed that Allred's
did not qualify for such a mitigation of sanction, and the so-
called "new claims" evidence was admitted solely on that issue.
Thus, the ALJ did not improperly admit evidence of new claims.
Rather, he properly considered relevant evidence that Allred's did
not qualify for relief from license revocation on the existing
claims. The sanction itself was based solely on the 86 violations
alleged in the original complaint.
Second, Allred's argues that the revocation of its license was
without observance of procedure as required by law because there
was no evidence that the Secretary's investigation of Allred's was
based on receipt by the Secretary of written notification of a
violation of the PACA. Allred's notes that 7 U.S.C. § 499f(b)
requires such written notification prior to commencement of an
official investigation, and asserts that the Secretary failed to
present evidence of such notification to justify the February 1996
compliance review that resulted in the complaint against Allred's.
This argument lacks basis both in law and in fact. The written
notification requirement was added as part of the 1995 amendments
to the PACA, more than a year after the initial investigation of
Allred's began in 1994. The Secretary found, based on substantial
record evidence, that the 1996 compliance review was a follow-up to
the original 1994 investigation. We agree. As such, since the
investigation began prior to the enactment of the written
notification requirement, the requirement could not act as a bar to
the Secretary's actions in this case. Moreover, the 1994
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investigation was triggered by trust notices and a reparation
complaint filed against Allred's. Thus, even if the written
notification requirement did apply, these written complaints were
sufficient to satisfy it.
Finally, Allred's challenges the ALJ's decision to admit the
testimony of Joan Colson, the Secretary's representative, to make
a sanction recommendation. Allred's contends that her testimony was
entirely unsupported, undocumented, unsubstantiated, and
unreliable, and that the admission of it was therefore without
observance of procedure as required by law. Once again, we
disagree. We note first that there is no reference to Ms. Colson's
testimony in the ALJ's order, and that there is no evidence that
either the ALJ or the Secretary relied on her testimony in imposing
the sanction of license revocation. Additionally, we agree with the
Secretary that Ms. Colson was a reliable witness with respect to
the sanction recommendation, and that the sanction recommended and
imposed was in accordance with the PACA. In sum, we find that the
ALJ and the Secretary likely did not rely on Ms. Colson's testimony
in imposing the sanction of license revocation, but even if they
did, that reliance was not erroneous, because the recommendation
was consistent with the PACA and the regulations.
IV.
We find that the Secretary's decision to revoke Allred's PACA
license was not arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with the law. Therefore, the
Secretary's Decision and Order is affirmed.
AFFIRMED.
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Allred's Produce v. United States Department of Agriculture
Court: Court of Appeals for the Fifth Circuit
Date filed: 1999-07-01
Citations: 178 F.3d 743
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