Spencer Livestock Com'n Co. v. Department of Agriculture

• Decision Date: 08 March 1988
• Docket Number: No. 87-7189,87-7189
• Citation: 841 F.2d 1451
• Parties: SPENCER LIVESTOCK COMMISSION COMPANY; Mike Donaldson, Petitioners, v. DEPARTMENT OF AGRICULTURE, Respondent.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1451

841 F.2d 1451

SPENCER LIVESTOCK COMMISSION COMPANY; Mike Donaldson, Petitioners, v. DEPARTMENT OF AGRICULTURE, Respondent.

No. 87-7189.

United States Court of Appeals Ninth Circuit.

Argued and Submitted Feb. 3, 1988.

Decided March 8, 1988.

Dean J. Miller, Gigray, Miller, Downen, Weston & Pasley, Caldwell, Idaho, for petitioners.

Harry S. Gold, Office of the Gen. Counsel, U.S. Dept. of Agriculture, Washington, D.C., for respondent.

Petition for Review of Order of the Judicial Officer of the United States Department of Agriculture.

Before ANDERSON and FLETCHER, Circuit Judges, and CARROLL, ^* District Judge.

FLETCHER, Circuit Judge:

Petitioners Spencer Livestock and Michael Donaldson appeal a decision of the administrative law judge, upheld by the Judicial Officer of the Department of Agriculture, assessing $30,000 in civil penalties against them and suspending them as registrants under the Packers and Stockyards Act for 10 years. We affirm.

FACTS

Petitioner Michael Donaldson is the president, manager and controlling shareholder of Spencer Livestock Commission Company. He was registered as both a dealer and a market agent under the Packers and Stockyards Act of 1921, as amended, 7 U.S.C. Sec. 181 et seq. ("the Act").

This case concerns 17 transactions for livestock in March and April of 1982 involving sales by petitioners to three livestock feeders. Following complaints from feeders with whom Donaldson had done business, the Packers and Stockyards Administration, an agency of the U.S. Department of Agriculture ("USDA" or "Department"), began to investigate Donaldson's operations in May, 1982. The agency wanted to determine whether Donaldson was in compliance with the Act and with consent orders to which Donaldson had previously agreed. Investigators were especially concerned with complaints about Donaldson's failure to provide documentation for livestock purchases in Canada.

In August, an investigator requested from Donaldson all records and invoices for the previous eight months. Although Donaldson provided some materials, documents were missing that would have enabled the agency to trace the Canadian transactions. The investigator next went to the Alberta Department of Agriculture to obtain the missing documents. When he visited one of petitioners' primary Canadian livestock suppliers, however, the supplier refused on Donaldson's instructions to allow the investigator to review any documents. It was not until the next June that Canadian officials were able to forward copies of the relevant material to the agency.

On February 10, 1984, the Administrator of the agency filed a complaint against petitioners. The complaint alleged that Donaldson had committed unfair and deceptive acts in violation of 7 U.S.C. Sec. 213(a). ¹ Specifically, it charged Donaldson with buying livestock on a commission basis and then fraudulently billing his principals at weights and prices above, and shrinkages below, the actual figures at which he had purchased the livestock. It also alleged that Donaldson had failed to provide, upon the principals' request, scale tickets, purchase invoices and other documents, all in an attempt to conceal the actual prices, weights and shrinkage allowances of the livestock. Finally, the complaint charged Donaldson with failing to maintain accounts, records and memoranda that fully and accurately disclosed the true nature of his operations, in violation of 7 U.S.C. Sec. 221. ²

After a hearing on July 23-26, 1985, an administrative law judge (ALJ) found that, because Donaldson knew that his principals believed he was operating as a market agency, his submission of false accountings constituted fraud under section 213(a). The ALJ also found Donaldson's destruction of invoices and other documents to be independent violations of section 213(a). In addition, Donaldson's failure to keep full and correct accounts and records was in contravention of section 221, the ALJ concluded. In all, the ALJ found that Donaldson had fraudulently overcharged the feeders by more than $34,000 and had intentionally overweighed livestock by 8,000 pounds.

Noting that previous administrative and criminal sanctions had failed to deter Donaldson from committing the offenses, the ALJ decided that only severe sanctions would suffice. Accordingly, he issued a cease and desist order, imposed a civil penalty of $30,000 against Donaldson, and suspended him as a registrant under the Act for ten years. Donaldson petitioned the USDA Judicial Officer ("JO") for review. On March 19, 1987, the JO adopted the ALJ's findings as his final decision and added additional supporting conclusions. Donaldson timely petitioned this court for review.

DISCUSSION

This court has jurisdiction over decisions of the USDA pursuant to 28 U.S.C. Sec. 2342(2).

A. Unfair and Deceptive Acts Under 7 U.S.C. Sec. 213

Petitioners concede that substantial evidence supports the JO's finding that they Section 213 prohibits a market agency from engaging in "any unfair, unjustly discriminatory, or deceptive practice" in connection with the buying or selling of livestock. 7 U.S.C. Sec. 213(a). It permits the Secretary of Agriculture to assess a civil penalty of up to $10,000 for each violation. 7 U.S.C. Sec. 213(b). The statute does not define what is meant by the terms unfair and deceptive; it has been held that "their meaning must be determined by the facts of each case within the purposes" of the Act. Capitol Packing Co. v. United States, 350 F.2d 67, 76 (10th Cir.1965).

acted in the capacity of a market agency, rather than as a dealer, and were therefore under a fiduciary duty. They contest the imposition of penalties, however, on the ground that the Department failed to demonstrate that their conduct was unfair or deceptive within the meaning of 7 U.S.C. Sec. 213. We must uphold the JO's finding as to deception if it is supported by substantial evidence. Bosma v. U.S. Dept. of Agric., 754 F.2d 804, 807 (9th Cir.1984); Corona Livestock Auction, Inc. v. U.S. Dept. of Agric., 607 F.2d 811, 814 & n. 8 (9th Cir.1979).

In Central Coast Meats v. U.S. Dept. of Agric., 541 F.2d 1325 (9th Cir.1976), we rejected the government's argument that it was unfair under section 213 for one concern to own both a cattle-buying and a meat-packing business. Central Coast, 541 F.2d at 1327. Since Congress had not specifically proscribed joint ownership, we ruled that to prove a violation of section 213, the Department would have to "show that the conduct in question is likely to produce the sort of injury the Act is designed to prevent." Id. See also Corona Livestock, 607 F.2d at 814 n. 6.

In Bosma, the JO found that appellant had failed to maintain accurate records pursuant to 7 U.S.C. Sec. 221, and that the incorrect records were deceptive under Sec. 213. Bosma, 754 F.2d at 807. We distinguished Central Coast as "quite a different case" on the grounds that in Bosma, unlike Central Coast, Congress had specifically prohibited appellant's actions. Id. at 808. We concluded that where the conduct in question is per se proscribed, we need only determine whether it may be considered "unfair" or "deceptive" absent a more specific showing of actual harm. Id. at 808-09.

In this case, the ALJ found three separate violations of Sec. 213. First, petitioners' billing and collecting on falsely increased weights and prices and decreased shrinkage allowances were found to violate 9 C.F.R. Secs. 201.44 and 201.55. The Department has consistently ruled false inflations of purchase weight deceptive under Sec. 213. See In re Collier, 38 A.D. 957 (1979); In re Boone Livestock Co., 27 A.D. 475 (1968); In re Fairbank, 27 A.D. 1371 (1968).

In affirming the JO's decision in Fairbank, this circuit implicitly accepted the characterization of false weights as deception. Fairbank v. Hardin, 429 F.2d 264 (9th Cir.1970). In Fairbank, the JO had found that appellant intentionally sold livestock, issued invoices and collected payments all at false weights, failed to keep buyer's invoices regarding his purchases, and failed to maintain accurate records. Id. at 266. Although we did not specifically review the Department's equation of document falsification with deception, we found the JO's conclusions within the law and supported by substantial evidence. Id. at 267.

The second ground on which the ALJ relied was petitioners' failure under 9 C.F.R. Secs. 201.44 and 201.45 to submit complete and accurate accountings of their purchases and to make available to their principals copies of bills in payment for expense items. Since it was by these false accountings that petitioners accomplished the fraud, the ALJ found these violations also to constitute deception.

Third, the ALJ concluded that by destroying invoices and other documents showing petitioners' actual expenses, petitioners hoped to conceal their fraud--yet another violation of section 213.

Petitioners maintain that the ALJ erred in finding their conduct illegal under Sec. 213 because their conduct did not threaten any of the interests the Act seeks to protect. They identify these interests as safeguarding The JO rejected this line of argument by finding that "[e]ven if true, that fact would be irrelevant. An agent who secretly increases the weights and prices of livestock purchased on a commission basis for principals commits very serious violations of the Act even if the invoice prices to the principals are at or below the market." We rejected a similar argument in Bosma, where we found an average profit of $100 per head "sufficient evidence to support the J.O.'s conclusion that Bosma did not pay his consignors a fair price, regardless of whether they were satisfied with what they got." Bosma, 754 F.2d at 809.

sellers, protecting consumers, and protecting the industry from unfair practices of competitors. Petitioners stress "of competitors" as though the Act were nothing more than a mirror of the antitrust laws. They argue that...