Baiardi Food Chain v. U.S.

• Citation: 482 F.3d 238
• Decision Date: 02 March 2007
• Docket Number: No. 06-1124.,06-1124.
• Parties: BAIARDI FOOD CHAIN, Petitioner v. UNITED STATES of America; United States Department of Agriculture the Secretary of Agriculture, Respondents.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

482 F.3d 238

BAIARDI FOOD CHAIN, Petitioner v. UNITED STATES of America; United States Department of Agriculture the Secretary of Agriculture, Respondents.

No. 06-1124.

United States Court of Appeals, Third Circuit.

Submitted Under Third Circuit LAR 34.1(a) January 19, 2007.

Filed March 2, 2007.

Kevin P. Claffey, Gentile & Dickler, New York, NY, Attorney for Petitioner.

Stephen M. Reilly, United States Department of Agriculture, Office of General Counsel, Washington, DC, Attorney for Respondents.

Before SLOVITER, RENDELL, and CUDAHY,^* Circuit Judges.

SLOVITER, Circuit Judge.

At issue in this petition for review is whether post-default agreements, entered into by a company licensed under the Perishable Agricultural Commodities Act ("PACA"), 7 U.S.C. §§ 499a-499s, and its produce suppliers, which set the payment for the produce at an amount lower than the invoice price, bar the United States Department of Agriculture ("USDA") from enforcing the prompt payment provisions of the PACA. Baiardi Chain Food Corp. ("Baiardi")¹ appeals the final order of the Secretary of the USDA, entered on September 2, 2005, which found Baiardi in violation of section 2(4) of the PACA, 7 U.S.C. § 499b(4), for failure to fully and promptly pay its suppliers of perishable agricultural commodities. The Secretary sanctioned Baiardi by ordering publication of the facts and circumstances of Baiardi's violations. We will affirm the decision of the Secretary and deny the petition for review.

I.

The material facts of this case are not in dispute. The Agricultural Marketing Service of the USDA initiated an investigation of Baiardi after receiving several complaints between October 2000 and January 2001 from suppliers seeking reparation for unpaid produce shipments. In January 2001, Carolyn Shelby, a PACA marketing specialist with the USDA, conducted an investigation of Baiardi's business practices and met with David Axelrod, the owner of the corporation. Axelrod provided Shelby with hundreds of unpaid invoices. The invoices revealed that Baiardi failed to make full payment promptly for 343 lots of perishable agricultural commodities from sixty-seven sellers, amounting to a debt owed of $830,728.39.

In January 2001, Baiardi notified its sellers (in most instances the producers of the agricultural products) that it was going out of business. Baiardi negotiated work-out agreements with several of the sixty-seven producers to whom Baiardi owed payment. Pursuant to those work-out agreements, the produce sellers accepted payment of approximately fifty cents on the dollar for the money Baiardi owed. The producers were willing to resolve Baiardi's indebtedness quickly because, due to Baiardi's impending demise, several companies feared they would receive none of the money they were owed if they chose not to settle. At least two other accounts were settled through court dispositions.

On August 2, 2001, the Associate Deputy Administrator, Fruit and Vegetable Programs, Agricultural Marketing Service of the USDA issued a complaint charging Baiardi with violating section 2(4) of the PACA. On October 16, 2001, Baiardi filed an answer denying the allegations in the complaint. Chief Administrative Law Judge (ALJ) Marc R. Hillson conducted a hearing in New York on February 2, 2004 and May 25, 2004, during which the agency called four witnesses and entered seventy-six exhibits into evidence. Baiardi called no witnesses but entered fifty-five exhibits into evidence through cross-examination of the agency's witnesses.

On April 8, 2005, the ALJ issued his decision and order, finding that Baiardi, from March 2000 through January 2001, failed to make full payment promptly for 343 lots of perishable agricultural commodities from sixty-seven producers in violation of section 2(4) of the PACA. On July 27, 2005, Baiardi appealed the ALJ Decision to the Secretary of the Department of Agriculture. On September 2, 2005, the Judicial Officer ("JO"), acting for the Secretary, affirmed the ALJ's decision and ordered that the facts and circumstances of Baiardi's violations be published, pursuant to the Secretary's authority under 7 U.S.C. § 499h(a). That section provides that if the buyer has "violated any of the provisions of [section 2 of the PACA, including 2(4)] . . . the Secretary may publish the facts and circumstances of such violation and/or, by order, suspend the license of such 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. Because Baiardi had failed to pay its license renewal fee, its PACA license terminated in June 2001; as such, the only sanction open to the Secretary was the publication of the facts and circumstances of the case. Baiardi filed a motion for reconsideration which the JO denied. Baiardi filed a timely petition for review with this Court.

II.

This Court has jurisdiction to review the Secretary's final order pursuant to 28 U.S.C. § 2342. Judicial review of the decision of an administrative agency is narrowly confined. Pursuant to the Administrative Procedure Act, this Court reviews final decisions by the Secretary of Agriculture under a deferential standard. 5 U.S.C. § 706 states, in pertinent part:

To the extent necessary to decision and when presented, the reviewing court shall. . . .

(2) hold unlawful and set aside agency action, findings, and conclusions found to be—

(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; (B) contrary to constitutional right, power, privilege, or immunity; (C) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right. . . .

This applies in full force to judicial review of sanctions imposed under the PACA. Wayne Cusimano, Inc. v. Block, 692 F.2d 1025, 1030 (5th Cir.1982). "The choice of sanctions imposed by the Secretary of Agriculture, through [the] Judicial Officer, may not be overturned in the absence of a patent abuse of discretion." American Fruit Purveyors, Inc. v. United States, 630 F.2d 370, 374 (5th Cir.1980).

Congress enacted the PACA in 1930 to promote fair trading practices in the produce industry. See Tanimura & Antle, Inc. v. Packed Fresh Produce, Inc., 222 F.3d 132, 135 (3d Cir.2000) (citing Idahoan Fresh v. Advantage Produce, Inc., 157 F.3d 197, 199 (3d Cir.1998)). Under the PACA, every dealer of perishable agricultural commodities is required to be licensed by the Secretary of Agriculture. Id.; see also Allred's Produce v. United States Dep't of Agriculture, 178 F.3d 743, 745 (5th Cir.1999) (citing 7 U.S.C. § 499c(a)). "Congress intended to protect small farmers and growers who were especially vulnerable to the practices of financially irresponsible . . . `buyers.'" Tanimura, 222 F.3d at 135; see also Idahoan Fresh, 157 F.3d at 199.

Under the PACA, it is unlawful for buyers of produce to fail to make prompt payment for a shipment of produce. Section 2(4) of the PACA states:

It shall be unlawful in or in connection with any transaction in interstate or foreign commerce:

(4) For any commission merchant, dealer, or broker to make, for a fraudulent purpose, any false or misleading statement in connection with any transaction involving any perishable agricultural commodity which is received in interstate or foreign commerce by such commission merchant, or bought or sold, or contracted to be bought, sold, or consigned, in such commerce by such dealer, or the purchase or sale of which in such commerce is negotiated by such broker; or to fail or refuse 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) (emphasis added).

A buyer's failure to tender prompt payment triggers civil liability and the possible revocation of the buyer's PACA license which is required by 7 U.S.C. § 499c. The PACA is "admittedly and intentionally a `tough' law." S.Rep. No. 84-2507 (1956), as reprinted in 1956 U.S.C.C.A.N. 3699, 3701, which

is designed to protect the producers of perishable agricultural products who in many instances must send their products to a buyer or commission merchant who is thousands of miles away. It was enacted to provide a measure of control over a branch of industry which is almost exclusively interstate commerce, is highly competitive, and presents many opportunities for sharp practice and irresponsible business conduct.

Zwick v. Freeman, 373 F.2d 110, 116 (2d Cir.1967) (citing H.R.Rep. No. 84-1196 (1955), as reprinted in 1956 U.S.C.C.A.N. 3701, 3701).

Congress amended the PACA in 1984 to add a section providing for a statutory trust to benefit unpaid suppliers of fresh produce. 7 U.S.C. § 499e(c). The statutory trust provision was created in response to congressional concern over the "increase in the number of buyers who failed to pay, or were dilatory in paying, their suppliers, and the impact of such payment practices on small suppliers who could not withstand a significant loss or delay in receipt of monies owed." Tanimura, 222 F.3d at 134-35 (holding that because sellers who qualified as PACA trust beneficiaries "demonstrated the likelihood of dissipation of trust fund assets and the likelihood of irreparable harm, the District Court should have granted the injunction sought.")

The trust consists of the perishable agricultural commodities received, all inventories of food or other products derived from the perishable commodities received, and any receivables or proceeds from the sale of such commodities or products. The trust holds all proceeds and receivables from the sale of produce by a dealer until the dealer pays the seller the full purchase price. 7 U.S.C. § 499e(c). The trust thus provides an additional remedy for sellers against a buyer failing to make prompt payment. Idahoan Fresh, 157 F.3d at 199 (citing H.R.Rep. No. 98-543, at 2 (1...