176 F.3d 536 (D.C. Cir. 1999), 98-1342, JSG Trading Corp. v. United States Dept. of Agriculture

Docket Nº:98-1342.
Citation:176 F.3d 536
Party Name:JSG TRADING CORP., Petitioner, v. UNITED STATES DEPARTMENT OF AGRICULTURE and United States of America, Respondents.
Case Date:May 25, 1999
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit
 
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Page 536

176 F.3d 536 (D.C. Cir. 1999)

JSG TRADING CORP., Petitioner,

v.

UNITED STATES DEPARTMENT OF AGRICULTURE and United States of

America, Respondents.

No. 98-1342.

United States Court of Appeals, District of Columbia Circuit

May 25, 1999

Argued April 28, 1999.

Page 537

On Petition for Review of an Order of the United States Department of Agriculture.

Robert M. Adler argued the cause for petitioner. With him on the briefs were Gary C. Adler and John M. Himmelberg.

M. Bradley Flynn, Attorney, U.S. Department of Agriculture, argued the cause for respondents. With him on the brief were James Michael Kelly, Associate General Counsel, and Margaret M. Breinholt, Acting Assistant General Counsel. Michael E. Robinson and Robert S. Greenspan, Attorneys, U.S. Department of Justice, entered appearances.

Before: EDWARDS, Chief Judge, GARLAND, Circuit Judge, and BUCKLEY, Senior Circuit Judge.

Opinion for the Court filed by Chief Judge HARRY T. EDWARDS.

HARRY T. EDWARDS, Chief Judge:

On an appeal from a decision of an Administrative Law Judge ("ALJ"), a Judicial Officer of the United States Department of Agriculture ("USDA") determined that petitioner JSG Trading Corporation ("JSG") had violated § 2(4) of the Perishable Agricultural Commodities Act ("PACA" or "Act"), 7 U.S.C. § 499b(4), by making a series of payments to the purchasing agents of two separate tomato buyers, L&P Fruit Corporation ("L&P") and American Banana, at a time when those agents were buying tomatoes from JSG on behalf of their respective employers. The Judicial Officer subsequently revoked JSG's license to deal in perishable agricultural commodities.

In this petition for review, JSG challenges the revocation of its license, alleging that the Judicial Officer was proceeding from an incorrect legal premise, namely, that any payment by a produce dealer to a purchasing agent above a de minimis level constitutes "commercial bribery" in violation of § 2(4) of PACA. JSG argues that this per se standard represents a marked departure from prior agency precedent, and that the case should be remanded for factual findings in accordance with the correct legal standard.

We agree that, in adopting a per se standard to measure commercial bribery, the Judicial Officer departed from well established precedent without adequate justification. We therefore remand the case to the agency, so that it may either attempt to justify its creation of a new, per se standard or make explicit factual findings pursuant to established law.

I. BACKGROUND

  1. Statutory and Regulatory Background

    "Congress enacted PACA in 1930 in an effort to assure business integrity in an industry thought to be unusually prone to fraud and to unfair practices." Tri-County Wholesale Produce Co. v. USDA, 822 F.2d 162, 163 (D.C.Cir.1987). A later Congress summarized the purpose of PACA as follows:

    Page 538

    [PACA] is admittedly and intentionally a "tough" law. It was enacted in 1930 for the purpose of providing a measure of control and regulation over a branch of industry which is engaged almost exclusively in interstate commerce, which is highly competitive, and in which the opportunities for sharp practices, irresponsible business conduct, and unfair methods are numerous. The law was designed primarily for the protection of the producers of perishable agricultural products--most of whom must entrust their products to a buyer or commission merchant who may be thousands of miles away, and depend for their payment upon his business acumen and fair dealing--and for the protection of consumers who frequently have no more than the oral representation of the dealer that the product they buy is of the grade and quality they are paying for.

    S.REP. NO. 84-2507, at 3 (1956), U.S.Code Cong. & Admin. Serv.1956, pp. 3699, 3701. "[T]he goal of ... [PACA is] that only financially responsible persons should be engaged in the businesses subject to the Act." Finer Foods Sales Co. v. Block, 708 F.2d 774, 782 (D.C.Cir.1983) (citations and internal quotation marks omitted). To achieve this end, the Act requires persons who buy or sell significant 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. § 499c.

    Section 2 of the Act makes unlawful a number of activities by licensees. See id. § 499b. Relevant here is § 2(4), which makes it unlawful for any commission merchant, dealer, or broker, in any transaction involving any perishable agricultural commodity, to, inter alia, "fail, without reasonable cause, to perform any specification or duty, express or implied, arising out of any undertaking in connection with any such transaction." Id. § 499b(4).

    In 1995, PACA was amended to establish that certain payments were not illegal under § 2(4). Specifically, the following sentence was added to § 2(4):

    However, this paragraph shall not be considered to make the good faith offer, solicitation, payment, or receipt of collateral fees and expenses, in and of itself, unlawful under this chapter.

    Perishable Agricultural Commodities Act Amendments of 1995, Pub.L. No. 104-48, § 9(b)(3), 109 Stat. 424, 430 (1995) (codified as amended at 7 U.S.C. § 499b(4)). The term "collateral fees and expenses" was defined as

    any promotional allowances, rebates, service or materials fees paid or provided, directly or indirectly, in connection with the distribution or marketing of any perishable agricultural commodity.

    Pub.L. No. 104-48, § 9(a), 109 Stat. 424, 429-30 (1995) (codified as amended at 7 U.S.C. § 499a(b)(13)).

    Upon a determination that a commission merchant, dealer, or broker has violated one of the provisions of § 2, the Act authorizes the Secretary of Agriculture to publish the facts and circumstances of the violation, and suspend the offender's PACA license for up to ninety days. See 7 U.S.C. § 499h(a). The Secretary may revoke the license if the violation is "flagrant or repeated." Id.

  2. Factual Background

    JSG is a New Jersey corporation in the business of buying and selling produce. In 1988, JSG was issued a PACA license, and that license was renewed annually thereafter. Beginning in January 1992, Steve Goodman served as JSG's president and controlled 75 percent of the company's stock. At all relevant times, Mr. Goodman was JSG's sole tomato buyer and seller. The transactions giving rise to the commercial bribery charges in this case originated from JSG's relationships with two tomato purchasers, L&P and American Banana, both produce dealers located at the Hunts Point Market in Bronx, New York.

    Page 539

    The purchasing agents in the disputed L&P transactions were Tony and Gloria Gentile. Mr. Goodman and Mr. Gentile, as well as their families, apparently enjoyed a close social relationship. Long before any of the questioned transactions occurred--in fact, before Mr. Goodman had any relationship at all with JSG--Mr. Gentile taught Mr. Goodman the tomato business. The Goodman and Gentile families spent a great deal of time together, often dining out and going to shows in Atlantic City.

    Mr. Gentile, who was the head tomato buyer for L&P from 1985 through 1991, had a joint account arrangement with L&P, whereby he would share profits and losses with L&P on the tomatoes that he purchased. Such joint accounts apparently are common in the New York produce industry. During the time that Mr. Gentile served as a buyer for L&P, he purchased tomatoes from JSG, as well as from other sellers.

    In 1989, Mr. Goodman and Mr. Gentile formed a trucking company called Dirtbag Trucking Corp. ("Dirtbag"), and each was issued 75 shares of Dirtbag stock. Dirtbag, which operated out of JSG's office, always had a cash flow problem, and JSG advanced money to it on a number of occasions. Although JSG was Dirtbag's primary customer, Dirtbag also provided trucking services to other produce companies.

    The purchasing agent in the questioned transactions with American Banana was Al Lomoriello. American Banana hired Mr. Lomoriello in 1991, on a joint account basis similar to L&P's arrangement with Mr. Gentile. According to Mr. Goodman and Mr. Lomoriello, Mr. Lomoriello sometimes provided various services to JSG, including delivering produce, collecting accounts receivable, and providing Mr. Goodman with pricing information on produce and market supplies.

  3. Procedural Background

    In January 1993, the USDA...

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