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Perfectly Fresh Farms v. United States Department

August 28, 2012

PERFECTLY FRESH FARMS, INC.; PERFECTLY FRESH CONSOLIDATION, INC.; PERFECTLY FRESH SPECIALTIES, INC.; JEFFREY LON DUNCAN, PETITIONERS,
v.
UNITED STATES DEPARTMENT OF AGRICULTURE, RESPONDENT. THOMAS BENNETT,
PETITIONER, AGRI NOS.
v.
PACA D-05-001-3 PACA-APP 05-UNITED STATES DEPARTMENT OF 0010-15 AGRICULTURE, RESPONDENT.



On Petitions for Review of an Order of the Judicial Officer of the United States Department of Agriculture

The opinion of the court was delivered by: Berzon, Circuit Judge:

FOR PUBLICATION

OPINION

Argued and Submitted May 3, 2011-Pasadena, California

Before: Harry Pregerson, Raymond C. Fisher, and Marsha S. Berzon, Circuit Judges.

Opinion by Judge Berzon

9945

OPINION

In 2001, two entrepreneurs founded Perfectly Fresh Marketing, Inc., a wholesale produce company, and soon thereafter founded three subsidiary companies to handle different aspects of the business. Although things started out well, before long the firms found themselves in financial straits, and declared bankruptcy before the legal proceedings that are the subject of this appeal began.

Those proceedings involve a complex, rarely litigated federal statute, the Perishable Agricultural Commodities Act ("PACA" or "the Act"), 7 U.S.C. § 499a et seq., designed in part to assure that farmers are paid for their produce. In 2009, the Judicial Officer ("JO") of the U.S. Department of Agriculture determined that Perfectly Fresh Farms, Inc., Perfectly Fresh Consolidation, Inc., and Perfectly Fresh Specialties, Inc. had violated the PACA by failing to make prompt payment for produce purchases. See id. § 499b(4); see generally In re Perfectly Fresh Farms, Inc., 68 Agric. Dec. 507 (U.S.D.A. 2009) ("JO Order"). All three of these entities-like their parent company Perfectly Fresh Marketing, Inc.*fn1 -had failed by the time the Department of Agriculture commenced administrative proceedings against them, each having filed for bankruptcy in February, 2003 and ceased doing business thereafter.

The penalty assessed against the three entities-publication of the facts and circumstances of their violations-caused them no harm, given that they were no longer in business. But the JO also determined that the two individual petitioners in this case were "responsibly connected" to the Subsidiaries. See 7 U.S.C. § 499a(b)(9). The Subsidiaries have conceded that it is primarily for these individuals' benefit that they have petitioned for review. The JO found that Jeffrey Lon Duncan was responsibly connected with Consolidation, of which he was the president, a director, and a ten percent owner, and that Thomas Bennett was responsibly connected with Farms, of which he was president, a director, and a ten percent owner. As "responsibly connected" individuals, Duncan and Bennett are subject to employment and licensing bans of variable duration in the perishable agricultural commodities industry. See id. §§ 499d(b) & 499h(b). They, and the Subsidiaries, petitioned for review of the JO's order.

I

A.

The Perishable Agricultural Commodities Act "was enacted . . . in 1930, and has undergone numerous amendments since that time. The Act was aimed at preventing unfair business practices and promoting financial responsibility in the fresh fruit and produce industry." Farley & Calfee, Inc. v. U.S. Dep't of Agric., 941 F.2d 964, 966 (9th Cir. 1991). Central here is the PACA provision making it unlawful for "any commission merchant, dealer, or broker . . . to fail or refuse truly and correctly to account and make full payment promptly in respect of any transaction in any [perishable agricultural] commodity to the person with whom such transaction is had."

7 U.S.C. § 499b(4). The regulations specify that "prompt[ ]" payment for "produce purchased by a buyer" is payment "within 10 days after the day on which the produce is accepted." 7 C.F.R. § 46.2(aa)(5); see also id. § 46.2(aa)(11) (allowing parties to opt out of the ten-day default rule).

The Secretary of Agriculture (the "Secretary") may, upon notification of an alleged violation, commence administrative proceedings against any commission merchant, dealer, or broker. 7 U.S.C. § 499f(c)(2). At the conclusion of such proceedings, the Secretary may issue a "reparation order" requiring the respondent to pay the "person complaining" "the amount of damage . . . to which such person is entitled as a result of [the] violation." Id. § 499g(a). The Secretary may also "publish the facts and circumstances of such violation and/or, by order, suspend the license of [the] 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." Id. § 499h(a).*fn2

Additionally, the Act requires all persons who "carry on the business of a commission merchant, dealer, or broker" to have a valid and effective license. Id. § 499c(a). There are statutory bans, usually of a year or two, on the employment and licensing of, and possible surety bond requirements for, "any person, or any person who is or has been responsibly connected with any person . . . (1) whose license has been revoked or is currently suspended by order of the Secretary; [or] (2) has been found . . . to have committed any flagrant or repeated violation" of the Act.*fn3 Id. § 499h(b); see id. § 499d(b); see also id. § 499d(c).

The Act defines "responsibly connected" as "affiliated or connected with a commission merchant, dealer, or broker as (A) partner in a partnership, or (B) officer, director, or holder of more than 10 per centum of the outstanding stock of a corporation or association." Id. § 499a(b)(9). Congress amended the Act in 1995, making the foregoing definition of "responsibly connected" rebuttable:

A person shall not be deemed to be responsibly connected if the person demonstrates by a preponderance of the evidence [(1)] that the person was not actively involved in the activities resulting in a violation of this chapter and [(2)] 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.

Id. (emphasis added); see Perishable Agricultural Commodities Act Amendments of 1995, Pub. L. No. 104-48, § 12(a), 109 Stat. 424. The broad definition of "responsibly connect-ed," and the difficulty of rebutting the presumption of responsible connection, accord with the House Committee on Agriculture's observation that the PACA is "admittedly and intentionally a 'tough' law," S. Rep. No. 84-2507, at 3 (1956), reprinted in 1956 U.S.C.C.A.N. 3699, 3701 (quoting H. Rep. No. 84-1196, at 2 (1955)), an observation with which the federal courts of appeals have generally agreed. See Baiardi Food Chain v. United States, 482 F.3d 238, 241 (3d Cir. 2007); Golman-Hayden Co. v. Fresh Source Produce Inc., 217 F.3d 348, 351 (5th Cir. 2000); Martino v. U.S. Dep't of Agric., 801 F.2d 1410, 1411 (D.C. Cir. 1986).

B. The facts underlying these petitions for review are as follows:

Gary Tice was an experienced professional in the produce industry. He sought out Jeffrey Lon Duncan to start a produce firm with him. Duncan had also worked in the produce industry for some time and had developed an expertise in selling produce to cruise lines, "a very exacting business given that ships are in port for a very short time and are more demanding than other customers." JO Order at 520. Tice was more knowledgeable than Duncan about the ins and outs of running a business, having spent the last few years advising other companies on strategy and operations. Together Tice and Duncan founded ...


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