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Cheryl A. Taylor and Steven C. Finberg v. United States Department of Agriculture and

January 7, 2011

CHERYL A. TAYLOR AND STEVEN C. FINBERG,
PETITIONERS
v.
UNITED STATES DEPARTMENT OF AGRICULTURE AND
UNITED STATES OF AMERICA, RESPONDENTS



On Petition for Review of Orders of the Department of Agriculture

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

Argued September 20, 2010

Before: BROWN, Circuit Judge, and EDWARDS and RANDOLPH, Senior Circuit Judges.

Opinion for the Court filed by Senior Circuit Judge EDWARDS.

Dissenting opinion filed by Circuit Judge BROWN.

The Perishable Agricultural Commodities Act ("PACA") requires persons who buy or sell specified quantities of perishable agricultural commodities at wholesale in interstate commerce to have a license issued by the Secretary of Agriculture, see 7 U.S.C. §§ 499a(b)(5)-(7), 499c(a), 499d(a), and makes it unlawful for a licensee to engage in certain types of unfair conduct, see id. § 499b. The statute requires regulated merchants, dealers, and brokers to "truly and correctly . . . account and make full payment promptly in respect of any transaction in any such commodity to the person with whom such transaction is had." 7 U.S.C. § 499b(4). It also provides that PACA licensees may not employ, for at least one year, any person found "responsibly connected" to any person whose license has been revoked or suspended, or who has been found to have committed any flagrant or repeated violation of 7 U.S.C. § 499b. See 7 U.S.C. § 499h(b).

In January 2007, an Administrative Law Judge ("ALJ") at the Department of Agriculture ("Department") found that Fresh America, a national produce wholesaler licensed to do business under PACA, had willfully, repeatedly, and flagrantly violated Section 2(4) of PACA, 7 U.S.C. § 499b(4), by failing to promptly make full payment to produce sellers between February 2002 and February 2003. In re Fresh Am. Corp., 66 Agric. Dec. 953, 959 (U.S.D.A. 2007). Fresh America did not contest this decision. While the case against Fresh America was pending, the Chief of the PACA Branch of the Fruit and Vegetable Division of the Agricultural Marketing Service determined that the petitioners in this case, Cheryl Taylor and Steven Finberg, who were officers of Fresh America, had been responsibly connected to Fresh America during the violations period and were therefore subject to the statute's employment restrictions. Taylor and Finberg sought administrative review of this determination.

In March 2009, following a two-day hearing, an ALJ issued a decision affirming the PACA Branch Chief's determinations and concluding that both Taylor and Finberg had been responsibly connected to Fresh America during the violations period. In September 2009, a Judicial Officer rejected the petitioners' administrative appeals. In re Taylor, PACA App. Docket Nos. 06-0008, 06-0009 (U.S.D.A. Sept. 24, 2009) ("Judicial Officer Decision"), reprinted in 1 Joint Appendix ("J.A.") 7. In holding against the petitioners, the Judicial Officer found that the petitioners were not merely nominal officers of Fresh America. The Judicial Officer also found that Fresh America was not the alter ego of its chairman of the board, Arthur Hollingsworth. Petitioners now seek review in this court.

We agree with petitioners that the Judicial Officer erred in rejecting their claims that they were merely nominal officers of Fresh America. Under 7 U.S.C. § 499a(b)(9), an "officer" of the offending company is not considered to be "responsibly connected" to a violating licensee if that person was not actively involved in the PACA violation and was "powerless to curb it," Quinn v. Butz, 510 F.2d 743, 755 (D.C. Cir. 1975). See also Bell v. Dep't of Agric., 39 F.3d 1199, 1202 (D.C. Cir. 1994). The Judicial Officer in this case "paid little heed to circuit law on nominal officers," id., for his decision is devoid of any analysis of the actual power exercised by Taylor and Finberg at Fresh America. The disputed decision is thus fatally flawed for want of reasoned decisionmaking. Accordingly, the petition for review is granted in part, and the case is remanded to the Department for further proceedings consistent with this decision.

I. BACKGROUND

A. Statutory Background

PACA prohibits certain conduct by merchants, dealers, or brokers of perishable agricultural commodities in order to "help instill confidence in parties dealing with each other on short notice, across state lines and at long distances." Kleiman & Hochberg, Inc. v. U.S. Dep't of Agric., 497 F.3d 681, 685 (D.C. Cir. 2007) (quoting Veg-Mix, Inc. v. U.S. Dep't of Agric., 832 F.2d 601, 604 (D.C. Cir. 1987)). PACA is "admittedly and intentionally a tough law." Kleiman & Hochberg, 497 F.3d at 693 (quoting S. REP. NO. 84-2507, at 3 (1956), reprinted in 1956 U.S.C.C.A.N. 3699, 3701 (internal quotation marks omitted)). As noted above, the statute forbids, inter alia, any merchant, dealer, or broker of perishable agricultural commodities from "fail[ing] or refus[ing] truly and correctly to account and make full payment promptly in respect of any transaction in any such commodity to the person with whom such transaction is had." 7 U.S.C. § 499b(4). In addition, PACA prevents licensees from employing, for a minimum of one year, "any person who is or has been responsibly connected" to a flagrant or repeated PACA violator. 7 U.S.C. § 499h(b).

Under this statutory scheme, [a]n officer, director, or holder of more than ten percent of the stock of a corporation licensed under the PACA is presumed . . to be 'responsibly connected' to that corporation. 7 U.S.C. § 499a(b)(9). For many years the circuits were divided over whether the presumption of § 499a(b)(9) is irrebuttable . . . or, as we held, rebuttable. See Quinn v. Butz, 510 F.2d at 757.

Hart v. Dep't of Agric., 112 F.3d 1228, 1230 (D.C. Cir. 1997). Under the law of this circuit, a person could rebut the presumption that he or she was "responsibly connected" to a PACA violator in either of two ways:

The first involve[d] cases in which the violator, although formally a corporation, [was] essentially an alter ego of its owners, so dominated as to negate its separate personality.

The second way of rebutting the presumption [was] for the petitioner to prove that at the time of the violations he was only a nominal officer, director, or shareholder. This he could establish by proving that he lacked an actual, significant nexus with the violating company. Where responsibility was not based on the individual's personal fault it would have to be based at least on his failure to counteract or obviate the fault of others.

Bell, 39 F.3d at 1201 (emphasis in original) (citations and internal quotation marks omitted).

"In 1995 the Congress amended § 499a(b)(9) to make it clear that the presumption is rebuttable." Hart, 112 F.3d at 1230. The statute now provides:

The term "responsibly connected" means 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. 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 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. ยง 499a(b)(9). Thus, under the current version of the statute, it is presumed that an officer of a corporation is responsibly connected to the violating company unless the officer can show that he or she (1) was not actively involved in the PACA violations, and (2) was either a nominal officer of the ...


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