Coosemans Specialties v. Department of Agric.

• Decision Date: 06 April 2007
• Docket Number: No. 06-1199.,06-1199.
• Citation: 482 F.3d 560
• Parties: COOSEMANS SPECIALTIES, INC., et al., Petitioners v. DEPARTMENT OF AGRICULTURE and United States of America, Respondents.
• Court: U.S. Court of Appeals — District of Columbia Circuit

482 F.3d 560

COOSEMANS SPECIALTIES, INC., et al., Petitioners v. DEPARTMENT OF AGRICULTURE and United States of America, Respondents.

No. 06-1199.

United States Court of Appeals, District of Columbia Circuit.

Argued February 20, 2007.

Decided April 6, 2007.

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

Stephen P. McCarron argued the cause and filed the briefs for petitioners Coosemans Specialties, Inc. and Eddy C. Creces.

Martin Schulman argued the cause for petitioner Daniel F. Coosemans.

Stephen M. Reilly, Attorney, U.S. Department of Agriculture, argued the cause for respondents. With him on the briefs were James Michael Kelly, Deputy General Counsel, and Margaret M. Breinholt, Assistant General Counsel.

Before: SENTELLE, RANDOLPH and BROWN, Circuit Judges.

Opinion for the Court filed by Circuit Judge SENTELLE.

SENTELLE, Circuit Judge.

Wholesale produce merchant Coosemans Specialties, Inc., petitions for review of a decision by the Secretary of the Department of Agriculture to revoke the company's license for violations of the Perishable Agricultural Commodities Act. The Secretary concluded that the company violated the Act's prohibition on unfair conduct when one of its employees bribed a Department of Agriculture inspector. In addition to revoking the company's license, the Secretary also barred two principals of the company from employment in the industry. The company and the individuals seek review of the Secretary's decision, contending that bribery does not violate the Act, and that the employment restrictions were unlawful. Because we conclude that the agency's actions were proper, we deny the petitions for review.

I.

The Perishable Agricultural Commodities Act, 7 U.S.C. §§ 499a-499s ("PACA" or the "Act"), was enacted in 1930 to regulate interstate and foreign commerce in fresh fruits and vegetables. The Act authorizes the agency to create a system for inspecting produce. Id. § 499n(a). It requires merchants to obtain licenses from the Secretary of the Department of Agriculture ("USDA" or "Secretary"), and subjects licensees to a number of requirements. Id. §§ 499b, 499c(a), 499e, 499i. Licensees who violate the Act may find their licenses suspended or revoked, and individuals affiliated with violators may be excluded from industry employment. Id. § 499h.

Petitioner Coosemans Specialties, Inc. ("CSI" or the "Company"), is a New York produce wholesaler whose PACA license was originally issued in 1986. The Company operates out of Hunts Point Terminal, a wholesale produce market in the Bronx, New York. At all times relevant to this matter, CSI had three principals, all of whom were part owners: Daniel F. Coosemans, president and founder; Eddy C. Creces, secretary, treasurer, and general manager; and Joe Faraci, vice president.

The perishable produce that arrives at Hunts Point often travels some distance between the supplier and a buyer, such as CSI. As a result, produce may arrive in a condition worse than expected. If the buyer then asks for a price reduction, the producer is at a disadvantage, because it has no way of knowing whether to trust the buyer's representations about the condition of the produce. The USDA's inspection process is intended to level the playing field by providing the faraway producer with an independent evaluation of the produce's condition so he can be assured that the price he receives is fair. A buyer, upon receipt of nonconforming goods, may request an inspection. An agency inspector reviews the produce and issues an official certificate assessing its condition that can help the producer and buyer renegotiate the price. After their transaction is complete, however, the inspection certificate is of little use in subsequent transactions. If the initial buyer is a wholesaler like CSI, it sells the produce to another buyer who is typically able to personally inspect the produce at Hunts Point.

This inspection system has been subject to abuse. For two decades, corrupt USDA inspectors and buyers at Hunts Point participated in a scheme of illegal payments. An inspector who received a bribe might furnish a falsified certificate indicating that the produce's condition was worse than it actually was. The buyer would use that certificate to negotiate a lower price with the supplier. Once he paid the supplier, the buyer could resell the produce for a price that reflected the produce's actual condition. In this way, a buyer who bribed inspectors for this purpose could increase his profit margin to the detriment of the supplier. Additionally, some inspectors who had accepted bribes permitted those companies to jump to the front of the line for inspections, thereby delaying the inspections of their competitors. Produce being perishable, buyers who had to wait for inspections were likely to receive lower prices when the goods were eventually resold.

In 1999, one of the Hunts Point inspectors, William Cashin, was caught taking bribes. After his arrest, he agreed to cooperate with investigators. He conducted inspections from April until August 1999 while wearing audio and/or video recording devices to document the bribes he received. During this period, he reported that he received fourteen bribes from Joe Faraci—CSI's vice president—both to hasten inspections and to falsify the resulting certificates in CSI's favor. Faraci was charged with eight counts of bribery of a public official, subsequently pled guilty to one count, and was imprisoned and fined. In light of these events, the Secretary filed a complaint against CSI on August 16, 2002, alleging that the Company, through Faraci's actions, had violated the implied duty clause of PACA's unfair practices provision. The Secretary also filed complaints against Eddy Creces and Daniel Coosemans individually, alleging that they were responsibly connected to CSI at the time the violations occurred.

The Company and both individuals denied the allegations and sought agency review. The cases were consolidated and heard in late 2003 before an Administrative Law Judge, who concluded that the Company's license should be revoked and that Creces and Coosemans, as "responsibly connected" persons, should be subject to the employment restrictions. The parties appealed to the Judicial Officer ("JO"), to whom the Secretary has delegated final authority in adjudicative proceedings. See 7 C.F.R. § 2.35. The JO affirmed the ALJ's initial decision in a decision and order issued April 20, 2006, finding in particular that in exchange for Faraci's bribes, Cashin would "falsify" USDA inspection certificates by, inter alia, "increasing the percentage of defects" and "changing the temperatures of the load." In re Coosemans Specialties, Inc., Dkt. No. D-02-0024, 2006 WL 1135512 (USDA). On June 13, 2006, CSI and the individual petitioners filed petitions before this Court seeking review of the Secretary's decision. CSI disputes the Secretary's interpretation of PACA's "implied duty" clause as encompassing a duty not to pay bribes. The individual petitioners challenge the Secretary's determination that they were subject to the employment restrictions as persons "responsibly connected" to CSI. The decision and order of the JO was stayed pending our ruling.

II.

A.

When reviewing an interpretation of a statute by an agency charged with the administration of that statute, we apply the two-step Chevron framework. Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). If the meaning of the statute is unambiguous, we must give effect to the clear congressional intent. Id. at 842-43, 104 S.Ct. 2778. If, however, the statutory language is ambiguous, we will uphold the agency's interpretation as long as it is not "arbitrary, capricious, or manifestly contrary to the statute." Id. at 844, 104 S.Ct. 2778. The USDA is entrusted to administer PACA, and therefore its interpretations are entitled to deference under Chevron. See id.

The Secretary's basis for revoking CSI's license is that the Company, through Faraci, violated the implied duty clause of PACA. That provision reads, in relevant part:

It shall be unlawful in or in connection with any transaction in interstate or foreign commerce ... [f]or any commission merchant, dealer, or broker to make, for a fraudulent purpose, any false or misleading statement in connection with any transaction ... or to fail or refuse truly and correctly to account and make full payment promptly in respect of any transaction ... or to fail, without reasonable cause, to perform any specification or duty, express or implied, arising out of any undertaking in connection with any such transaction; or to fail to maintain the trust as required under section 499e(c) of this title....

7 U.S.C. § 499b(4) (emphasis added).

CSI argues that the implied duty clause cannot fairly be read to include a duty not to bribe USDA inspectors. To do so runs contrary to a number of principles of statutory interpretation. We disagree. Initially, we note that Congress's language in this subsection is extremely broad. The word "any" appears no fewer than three times in the specific clause at issue, modifying the words "undertaking," "transaction" and "duty." Id. The breadth and ambiguity of the key phrase as well—"any specification or duty, express or implied"— contemplates a wide range of behavior. See G&T Terminal Packaging Co. v. Dep't of Agric., 468 F.3d 86, 96 (2d Cir. 2006) ("G&T"); cf. Duties of Licensees, 7 C.F.R. § 46.26 (noting that, because it is "impracticable to specify in detail all of the duties," conduct specified in the regulations is not exhaustive). Implied duties, by their nature, would not be spelled out in a contract or otherwise; they are given meaning by agency gap-filling. See JSG Trading Corp. v. Dep't of Agric., 235 F.3d 608, 614 n. 8 (D.C.Cir. 2001) ("JSG Trading II") ("Given the substantial ambiguity in § 499b(4), it is the Department's...