Perfectly Fresh Farms, Inc. v. U.S. Dep't of Agric., Nos. 09–72434

CourtUnited States Courts of Appeals. United States Court of Appeals (9th Circuit)
Writing for the CourtBERZON
Citation692 F.3d 960,2012 Daily Journal D.A.R. 11996,12 Cal. Daily Op. Serv. 9842
PartiesPERFECTLY FRESH FARMS, INC.; Perfectly Fresh Consolidation, Inc.; Perfectly Fresh Specialties, Inc.; Jeffrey Lon Duncan, Petitioners, v. UNITED STATES DEPARTMENT OF AGRICULTURE, Respondent. Thomas Bennett, Petitioner, v. United States Department of Agriculture, Respondent.
Docket Number09–72535.,Nos. 09–72434
Decision Date28 August 2012

692 F.3d 960
12 Cal.
Daily Op. Serv. 9842
2012 Daily Journal D.A.R. 11,996

PERFECTLY FRESH FARMS, INC.; Perfectly Fresh Consolidation, Inc.; Perfectly Fresh Specialties, Inc.; Jeffrey Lon Duncan, Petitioners,
v.
UNITED STATES DEPARTMENT OF AGRICULTURE, Respondent.

Thomas Bennett, Petitioner,
v.
United States Department of Agriculture, Respondent.

Nos. 09–72434, 09–72535.

United States Court of Appeals,
Ninth Circuit.

Argued and Submitted May 3, 2011.
Filed Aug. 28, 2012.


[692 F.3d 962]


Jonathan Barry Sexton (argued) and Stephen T. Kitagawa, Paul R. Roper, P.C., Orange, CA, for petitioner Thomas Bennett.

Christopher F. Bryan (argued), Law Office of Christopher F. Bryan, Los Angeles, CA, for petitioners Perfectly Fresh Consolidation, Inc., Perfectly Fresh Farms, Inc., Perfectly Specialties, Inc., and Jeffrey Lon Duncan.


James Michael Kelley, Marc. L. Kesselman, Leslie K. Lagomarcino (argued), and Brian J. Sonfield, Office of the General Counsel, U.S. Department of Agriculture, Washington, D.C., for respondent U.S. Department of Agriculture.

On Petitions for Review of an Order of the Judicial Officer of the United States Department of Agriculture. AGRI Nos. PACA D–05–001–3, PACA–APP 05–0010–15.
Before: HARRY PREGERSON, RAYMOND C. FISHER, and MARSHA S. BERZON, Circuit Judges.

OPINION

BERZON, Circuit Judge:

In 2001, two entrepreneurs founded Perfectly Fresh Marketing, Inc., a wholesale produce company, and soon thereafter founded three subsidiary companies to handle different aspects of the business. Although things started out well, before long the firms found themselves in financial straits, and declared bankruptcy before the legal proceedings that are the subject of this appeal began.

Those proceedings involve a complex, rarely litigated federal statute, the Perishable Agricultural Commodities Act (“PACA” or “the Act”), 7 U.S.C. § 499a et seq., designed in part to assure that farmers are paid for their produce. In 2009, the Judicial Officer (“JO”) of the U.S. Department of Agriculture determined that Perfectly Fresh Farms, Inc., Perfectly Fresh Consolidation, Inc., and Perfectly Fresh Specialties, Inc. had violated the

[692 F.3d 963]

PACA by failing to make prompt payment for produce purchases. See id.§ 499b(4); see generally In re Perfectly Fresh Farms, Inc., 68 Agric. Dec. 507 (U.S.D.A.2009) (“JO Order”). All three of these entities—like their parent company Perfectly Fresh Marketing, Inc.1—had failed by the time the Department of Agriculture commenced administrative proceedings against them, each having filed for bankruptcy in February, 2003 and ceased doing business thereafter.

The penalty assessed against the three entities—publication of the facts and circumstances of their violations—caused them no harm, given that they were no longer in business. But the JO also determined that the two individual petitioners in this case were “responsibly connected” to the Subsidiaries. See7 U.S.C. § 499a(b)(9). The Subsidiaries have conceded that it is primarily for these individuals' benefit that they have petitioned for review. The JO found that Jeffrey Lon Duncan was responsibly connected with Consolidation, of which he was the president, a director, and a ten percent owner, and that Thomas Bennett was responsibly connected with Farms, of which he was president, a director, and a ten percent owner. As “responsibly connected” individuals, Duncan and Bennett are subject to employment and licensing bans of variable duration in the perishable agricultural commodities industry. See id.§§ 499d(b) & 499h(b). They, and the Subsidiaries, petitioned for review of the JO's order.

I
A.

The Perishable Agricultural Commodities Act “was enacted ... in 1930, and has undergone numerous amendments since that time. The Act was aimed at preventing unfair business practices and promoting financial responsibility in the fresh fruit and produce industry.” Farley & Calfee, Inc. v. U.S. Dep't of Agric., 941 F.2d 964, 966 (9th Cir.1991). Central here is the PACA provision making it unlawful for “any commission merchant, dealer, or broker ... to fail or refuse truly and correctly to account and make full payment promptly in respect of any transaction in any [perishable agricultural] commodity to the person with whom such transaction is had.” 7 U.S.C. § 499b(4). The regulations specify that “prompt[ ]” payment for “produce purchased by a buyer” is payment “within 10 days after the day on which the produce is accepted.” 7 C.F.R. § 46.2(aa)(5); see also id. § 46.2(aa)(11) (allowing parties to opt out of the ten-day default rule).

The Secretary of Agriculture (the “Secretary”) may, upon notification of an alleged violation, commence administrative proceedings against any commission merchant, dealer, or broker. 7 U.S.C. § 499f(c)(2). At the conclusion of such proceedings, the Secretary may issue a “reparation order” requiring the respondent to pay the “person complaining” “the amount of damage ... to which such person is entitled as a result of [the] violation.” Id. § 499g(a). The Secretary may also “publish the facts and circumstances of such violation and/or, by order, suspend the license of [the] 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.§ 499h(a).2

[692 F.3d 964]

Additionally, the Act requires all persons who “carry on the business of a commission merchant, dealer, or broker” to have a valid and effective license. Id. § 499c(a). There are statutory bans, usually of a year or two, on the employment and licensing of, and possible surety bond requirements for, “any person, or any person who is or has been responsibly connected with any person ... (1) whose license has been revoked or is currently suspended by order of the Secretary; [or] (2) has been found ... to have committed any flagrant or repeated violation” of the Act.3Id.§ 499h(b); see id.§ 499d(b); see also id.§ 499d(c).

The Act defines “responsibly connected” as “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.” Id. § 499a(b)(9). Congress amended the Act in 1995, making the foregoing definition of “responsibly connected” rebuttable:

A person shall not be deemed to be responsibly connected if the person demonstrates by a preponderance of the evidence [ (1) ] that the person was not actively involved in the activities resulting in a violation of this chapter and [ (2) ] 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.

Id. (emphasis added); see Perishable Agricultural Commodities Act Amendments of 1995, Pub.L. No. 104–48, § 12(a), 109 Stat. 424. The broad definition of “responsibly connected,” and the difficulty of rebutting the presumption of responsible connection, accord with the House Committee on Agriculture's observation that the PACA is “admittedly and intentionally a ‘tough’ law,” S.Rep. No. 84–2507, at 3 (1956), reprinted in 1956 U.S.C.C.A.N. 3699, 3701 (quoting H. Rep. No. 84–1196, at 2 (1955)), an observation with which the federal courts of appeals have generally agreed. See Baiardi Food Chain v. United States, 482 F.3d 238, 241 (3d Cir.2007); Golman–Hayden Co. v. Fresh Source Produce Inc., 217 F.3d 348, 351 (5th Cir.2000); Martino v. U.S. Dep't of Agric., 801 F.2d 1410, 1411 (D.C.Cir.1986).


B.

The facts underlying these petitions for review are as follows:

Gary Tice was an experienced professional in the produce industry. He sought out Jeffrey Lon Duncan to start a produce firm with him. Duncan had also worked in the produce industry for some time and had developed an expertise in selling produce to cruise lines, “a very exacting business given that ships are in port for a very short time and are more demanding than other customers.” JO Order at 520. Tice was more knowledgeable than Duncan about the ins and outs of running a business, having spent the last few years advising other companies on strategy and operations. Together Tice and Duncan founded Perfectly Fresh Marketing, Inc. (“Marketing”) in June, 2001. At the outset, Tice and his wife owned fifty-one percent of Marketing and Duncan the remainder.

Later, after a new business partner made a substantial investment in Perfectly Fresh, three subsidiaries were formed: Specialties, Farms, and Consolidation. Specialties was to sell produce to supermarkets; Consolidation was to focus on

[692 F.3d 965]

selling to cruise lines; and Farms was to develop “grower relationships, such as an exclusive agreement to distribute papayas grown by Hawaiian Pride.” JO Order at 516. Marketing owned ninety percent of each of the Subsidiaries. According to the paperwork filed with the Department of Agriculture, Duncan owned the remaining ten percent of Consolidation; Thomas Bennett—a forty-year veteran of the produce industry whom Tice had brought aboard—owned the same percentage of Farms.4

The same papers listed Duncan as president and a director of Consolidation and Bennett as president and a director of Farms. In spite of their titles, neither Duncan nor Bennett was much involved in the legal or financial affairs of their companies. Both testified to having signed the corporate paperwork fairly casually. Indeed, according to Bennett, the “title of president was [given to him] just to allow him to deal with a higher level of personnel at the companies to which he would be selling,” JO Order at 521; he did not believe himself to have authority even to sign checks on behalf of Farms.

The precise relationship between Marketing and its newly formed subsidiaries is the main issue in this case. This much, taken from the JO's order, appears clear:

The four...

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9 practice notes
  • Knapp v. U.S. Dep't of Agric., No. 14-60002
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • July 31, 2015
    ...regulations. See Theodros v. Gonzales, 490 F.3d 396, 400 (5th Cir. 2007); see also Perfectly Fresh Farms, Inc. v. U.S. Dep't of Agric., 692 F.3d 960, 966 (9th Cir. 2012). We generally grant Auer deference to an agency's interpretation of its own ambiguous regulation, unless that interpretat......
  • Knapp v. U.S. Dep't of Agric., No. 14–60002.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • July 31, 2015
    ...regulations. See Theodros v. Gonzales, 490 F.3d 396, 400 (5th Cir.2007) ; see also Perfectly Fresh Farms, Inc. v. U.S. Dep't of Agric., 692 F.3d 960, 966 (9th Cir.2012). We generally grant Auer deference to an agency's interpretation of its own ambiguous regulation, unless that interpretati......
  • Stancle v. Clay, No. 09–56374.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • August 28, 2012
    ...second petition to an elaboration of the facts or simply attempt to correct deficiencies. Further, Stancle's alleged mental incompetence [692 F.3d 960]is insufficient to warrant equitable tolling, because he did not meet his burden of showing that he could not have filed a timely petition w......
  • Scott Farms, Inc. v. Wayne Bailey, Inc., No. 7:18-CV-186-D
    • United States
    • United States District Courts. 4th Circuit. Eastern District of North Carolina
    • September 27, 2019
    ..."full payment promptly." 7 U.S.C. § 499b(4) ; 7 C.F.R. §§ 46.2(aa), 46.46(e) ; see Perfectly Fresh Farms, Inc. v. U.S. Dep't of Agric., 692 F.3d 960, 963 (9th Cir. 2012) ; Am. Banana Co., 362 F.3d at 42-43 ; In re Davis Distribs., 861 F.2d at 417 ; Spada Props., Inc., 121 F. Supp. 3d at 107......
  • Request a trial to view additional results
9 cases
  • Knapp v. U.S. Dep't of Agric., No. 14-60002
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • July 31, 2015
    ...regulations. See Theodros v. Gonzales, 490 F.3d 396, 400 (5th Cir. 2007); see also Perfectly Fresh Farms, Inc. v. U.S. Dep't of Agric., 692 F.3d 960, 966 (9th Cir. 2012). We generally grant Auer deference to an agency's interpretation of its own ambiguous regulation, unless that interpretat......
  • Knapp v. U.S. Dep't of Agric., No. 14–60002.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • July 31, 2015
    ...regulations. See Theodros v. Gonzales, 490 F.3d 396, 400 (5th Cir.2007) ; see also Perfectly Fresh Farms, Inc. v. U.S. Dep't of Agric., 692 F.3d 960, 966 (9th Cir.2012). We generally grant Auer deference to an agency's interpretation of its own ambiguous regulation, unless that interpretati......
  • Stancle v. Clay, No. 09–56374.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (9th Circuit)
    • August 28, 2012
    ...second petition to an elaboration of the facts or simply attempt to correct deficiencies. Further, Stancle's alleged mental incompetence [692 F.3d 960]is insufficient to warrant equitable tolling, because he did not meet his burden of showing that he could not have filed a timely petition w......
  • Scott Farms, Inc. v. Wayne Bailey, Inc., No. 7:18-CV-186-D
    • United States
    • United States District Courts. 4th Circuit. Eastern District of North Carolina
    • September 27, 2019
    ..."full payment promptly." 7 U.S.C. § 499b(4) ; 7 C.F.R. §§ 46.2(aa), 46.46(e) ; see Perfectly Fresh Farms, Inc. v. U.S. Dep't of Agric., 692 F.3d 960, 963 (9th Cir. 2012) ; Am. Banana Co., 362 F.3d at 42-43 ; In re Davis Distribs., 861 F.2d at 417 ; Spada Props., Inc., 121 F. Supp. 3d at 107......
  • Request a trial to view additional results

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