MacClaren v. US Dept of AGRI

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206 2 H.C. MacClaren, Inc. v. No. 02-3006
ELECTRONIC CITATION: 2003 FED App. 0319P (6th Cir.) United States Dep’t of Agric.
File Name: 03a0319p.06
_________________
UNITED STATES COURT OF APPEALS COUNSEL
FOR THE SIXTH CIRCUIT ARGUED: Stephen P. McCarron, McCARRON & DIESS,
_________________ Washington, D.C., for Petitioner. Stephen M. Reilly,
OFFICE OF GENERAL COUNSEL, UNITED STATES
H.C. MACCLAREN, INC., X DEPARTMENT OF AGRICULTURE, Washington, D.C., for
Petitioner, - Respondent. ON BRIEF: Stephen P. McCarron,
- McCARRON & DIESS, Washington, D.C., for Petitioner.
- No. 02-3006 Stephen M. Reilly, OFFICE OF GENERAL COUNSEL,
v. - UNITED STATES DEPARTMENT OF AGRICULTURE,
> Washington, D.C., for Respondent.
,
UNITED STATES DEPARTMENT -
OF AGRICULTURE , _________________
-
Respondent. - OPINION
- _________________
N
On Appeal from an Order of the Secretary, JULIA SMITH GIBBONS, Circuit Judge. Petitioner H.C.
United States Department of Agriculture. MacClaren, Inc. (MacClaren), a wholesale produce broker,
No. D-99-0012. appeals a final order of the Secretary of Agriculture revoking
its license pursuant to the Perishable Agricultural
Argued: June 11, 2003 Commodities Act (PACA), 7 U.S.C. §§ 499a-499s. The
Secretary determined that the sanction of license revocation
Decided and Filed: September 4, 2003 was appropriate after concluding that MacClaren had
committed sixty-one violations of PACA. Specifically,
Before: MOORE and GIBBONS, Circuit Judges; MacClaren employees admitted to altering fifty-three United
SCHWARZER, Senior District Judge.* States Department of Agriculture (USDA or “the agency”)
inspection certificates and issuing eight false accounts of sale
for a fraudulent purpose. MacClaren contends that in
imposing the sanction of license revocation, the Secretary
erred in failing to consider the remedial purpose of PACA and
all relevant circumstances and imposed a sanction that is
without justification in fact. For the reasons set forth below,
we affirm the decision of the Secretary.
*
The Honorable William W Schwarzer, Senior United States District
Judge for the Northern District of California, sitting by designation.
1
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United States Dep’t of Agric. United States Dep’t of Agric.
I. The investigators then reviewed thirty-six files and found
discrepancies in eleven of the files handled by Olds, Gottlob
MacClaren began doing business in the 1920s and was and Johnston.
issued a PACA license in 1974. Since 1974, MacClaren’s
license has been renewed annually. MacClaren operates out Gregory MacClaren and Darrell Moccia denied knowledge
of Detroit, Michigan, and is owned and managed by Gregory of the alterations and told investigators that they wanted to
MacClaren, president, director and fifty-one percent cooperate and investigate the matter internally. They initiated
stockholder, and Darrell Moccia, vice-president, director, and an internal review and had their employees review all past
forty-nine percent stockholder. In addition to Gregory files for altered inspection certificates. The internal
MacClaren and Darrell Moccia, during the relevant time investigation uncovered numerous additional altered
period MacClaren employed four salespersons, Norman Olds, inspection certificates which Gregory MacClaren and Darrell
Alan Johnston, Frederick Gottlob and Daniel Schmidlin, who Moccia turned over to investigators. Olds, Gottlob and
were paid on commission. All six individuals purchased Johnston voluntarily gave statements to the investigators
fruits and vegetables (perishable commodities) from shippers admitting that they had altered USDA inspection certificates
throughout the country and resold the produce to local jobbers and denying that Gregory MacClaren or Darrell Moccia were
and wholesalers. They worked in the same area with raised aware of their actions. Gottlob also admitted to issuing seven
dividers separating their desks and together handled about false accounts of sale, and Olds admitted to issuing one such
400 transactions per month. false account.
Prior to the violations at issue, MacClaren had no record of Gregory MacClaren personally contacted the suppliers
violations of PACA. During 1994 through 1996, however, affected by the altered inspection certificates and false
three MacClaren employees committed sixty-one violations accounts to express MacClaren’s intent to make restitution.
of PACA. Olds, Johnston and Gottlob admitted to altering According to MacClaren, the company returned almost one
fifty-three inspection certificates resulting in underpayments hundred percent of the amounts it underpaid shippers as a
totaling $130,903.00 to twenty-two suppliers. In addition, result of the alterations and false accountings.1
Olds and Gottlob admitted to issuing eight false accounts of
sale to seven suppliers resulting in underpayments of Despite their admissions of improper conduct, MacClaren
$6,599.15. continued to employ Olds and Gottlob on the condition that
they reimburse MacClaren for the restitution that it intended
The admissions by MacClaren employees resulted from the to pay the shippers. In addition, Olds and Gottlob were
investigation of another company suspected of altering directed to call each shipper affected by the altered inspection
inspection certificates. In December 1996, USDA certificates, explain their actions and advise the shipper that
investigators visited MacClaren to examine MacClaren’s file MacClaren intended to make restitution for any losses the
relating to a transaction with the company under shipper suffered. Olds continued working for MacClaren, and
investigation. Upon examining the file, the investigators
discovered two copies of the same USDA inspection
certificate containing conflicting entries. Neither Gregory 1
The USDA concedes that MacC laren repaid “most but not all of the
MacClaren nor Darrell Moccia could explain the discrepancy. unde rpaym ents.”
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through paycheck deductions he reimbursed MacClaren for The agency appealed the ALJ’s decision to the Judicial
the restitution on the inspection certificates he altered. Officer, acting for the Secretary of Agriculture, on May 23,
Gottlob, however, only continued working for MacClaren for 2001.3 Among other things, the agency argued that the ALJ
about a month and a half until he was terminated for poor erred in failing to find MacClaren’s violations willful and
work performance. Gottlob did not repay MacClaren any of therefore further erred by imposing a sanction of a civil
the restitution amount. monetary penalty rather than license revocation. On
November 8, 2001, without conducting an additional hearing,
On June 17, 1999, the USDA issued a complaint charging Judicial Officer William G. Jenson issued a decision and
MacClaren with violating PACA by altering fifty-three order in which he agreed with the majority of the ALJ’s
USDA inspection certificates and submitting false accounts findings. The decision, however, differed from the opinion of
to seven suppliers. The Complaint requested that the ALJ in two significant areas. First, in the findings of fact,
MacClaren’s license be revoked due to its “willful, flagrant the Judicial Officer concluded that Gregory MacClaren and
and repeated violations” of PACA. On September 20 and 21, Darrell Moccia, MacClaren’s owners, “did not know, but
2000, Administrative Law Judge (ALJ) James W. Hunt should have known, during the period of June 1994 through
conducted a hearing in Detroit, Michigan. In his decision and November 1996, that the United States Department of
order finding that MacClaren violated PACA as alleged in the Agriculture inspection certificates . . . were altered and that
complaint, the ALJ noted that MacClaren “did not deny that the false accounts of sales . . . were made.” In addition, the
53 USDA inspection certificates had been altered.” He held Judicial Officer disagreed with the sanction of a civil
that because “these unlawful acts were committed by monetary penalty and instead imposed the sanction of license
[MacClaren’s] salesmen in the course of their employment, revocation. MacClaren filed its petition for review in this
they are deemed to be the acts of [MacClaren].” In deciding court on January 2, 2002, which was within sixty days of
the appropriate sanction for the violations, the ALJ found that issuance of the final agency order as required under 28 U.S.C.
it had not been shown that MacClaren “was irresponsible or § 2344.
unscrupulous and no evidence was provided to show that
license revocation or suspension would have a greater II.
beneficial effect on the industry than a monetary fine.”
According to the ALJ, MacClaren “acted responsibly when it In 1930, Congress enacted PACA “for the purpose of
became aware of the fraudulent practices of its salesmen” and regulating the interstate business of shipping and handling
“took prompt measures to provide restitution to the shippers.” perishable agricultural commodities such as fresh fruit and
Moreover, the ALJ recognized that neither Olds or Gottlob vegetables.” Allred’s Produce v. United States Dep’t of
was criminally prosecuted for altering federal inspections Agric., 178 F.3d 743, 745 (5th Cir. 1999) (quoting George
under 7 U.S.C. § 499n(b).2 Therefore, the ALJ imposed a Steinberg and Son, Inc. v. Butz, 491 F.2d 988 (2d Cir. 1974)).
civil penalty of $50,000. PACA was “designed to ensure that commerce in agricultural
2 3
Gottlob obtained immunity from criminal prosecution in return for The Secretary of Agriculture has delegated authority to the Judicial
his testimony at the USD A hearing. Olds testified at the hearing, but did Officer to act as final deciding o fficer in the U SD A’s adjudicatory
not rec eive immunity. proceedings subject to 5 U.S.C. §§ 556 & 557. 7 C.F.R. § 2.35.
No. 02-3006 H.C. MacClaren, Inc. v. 7 8 H.C. MacClaren, Inc. v. No. 02-3006
United States Dep’t of Agric. United States Dep’t of Agric.
commodities is conducted in an atmosphere of financial [R]eliance will no longer be placed on the “severe”
responsibility.” Kanowitz Fruit and Produce Co, Inc., v. sanction policy set forth in many prior decisions. Rather,
United States Dep’t of Agric., No. 97-4224, 1998 WL the sanction in each case will be determined by
863340, at *1 (2d Cir. Oct. 29, 1998). It provides “a measure examining the nature of the violations in relation to the
of control over a branch of industry which is almost remedial purposes of the regulatory statute involved,
exclusively in interstate commerce, is highly competitive, and along with all relevant circumstances, always giving
presents many opportunities for sharp practice and appropriate weight to the recommendations of the
irresponsible business conduct.” Allred’s Produce, 178 F.3d administrative officials charged with the responsibility
at 745 (quoting Zwick v. Freeman, 373 F.2d 110, 116 (2d Cir. for achieving the congressional purpose.
1967)). To achieve this control, PACA establishes a strict
licensing system and subjects all dealers of perishable 50 Agric. Dec. 476, 497 (1991) (citations omitted), aff’d,
agricultural commodities to severe sanctions for violations of 1993 WL 128889 (9th Cir. 1993). Accordingly, the Secretary
PACA’s requirements. Id.; 7 U.S.C. §§ 499c(a) & 499h. The must consider all relevant circumstances, including both
USDA is designated with authority to administer and enforce mitigating and aggravating circumstances, when selecting the
PACA. appropriate sanction. See Tambone v. United States Dep’t of
Agric., 50 F.3d 52, 55 (D.C. Cir. 1995).
Under PACA, dealers are subject to a number of statutory
requirements including making full payment promptly for all MacClaren first contends that the Secretary, acting through
purchases of perishable agricultural commodities. 7 U.S.C. the Judicial Officer, failed to apply the proper USDA standard
§ 499b(4). In addition, it is unlawful for any dealer “to make, for determining sanctions in deciding to revoke MacClaren’s
for a fraudulent purpose, any false or misleading statement in license. Whether the Secretary applied the correct standard is
connection with any transaction involving any perishable a question of law subject to de novo review. Potato Sales
agricultural commodity” and “to fail or refuse [to] truly and Co., Inc. v. Dep’t of Agric., 92 F.3d 800, 803 (9th Cir. 1996)
correctly . . . account for such transactions.” Id. Violations (“[a]n agency’s conclusions of law are subject to de novo
of PACA’s requirements may result in sanctions. The review”). Our review of the Secretary’s decision indicates
Secretary may publish the facts and circumstances of that the Secretary applied the correct legal standard for
violations and suspend the license of the violator for up to determining the appropriate sanction as set forth in S.S.
ninety days, or, if a violation is flagrant or repeated, the Farms Linn County, Inc.
Secretary may revoke the violator’s license. 7 U.S.C.
§ 499h(a). In 1995, Congress amended PACA to provide for MacClaren next claims that the Secretary applied the legal
the alternative sanction of a civil monetary penalty not to standard incorrectly and therefore imposed an improper
exceed $2,000 per violation or $2,000 each day a violation sanction because the Secretary did not examine the nature of
continues. 7 U.S.C. § 499h(e). the violations in relation to the remedial purpose of PACA
and did not consider all relevant circumstances. Our review
The USDA set forth the standard governing the decision to of an administrative agency decision is narrow, and we will
impose a particular sanction in In re S.S. Farms Linn County, uphold the decision unless it is “arbitrary, capricious, an
Inc.: abuse of discretion, or otherwise not in accordance with the
law.” Allred’s Produce, 178 F.3d at 746 (quoting 5 U.S.C.
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§ 706(2)(A)). Specifically, we review whether the Secretary Before determining the appropriate sanction against
misapplied the sanction standard for an abuse of discretion, MacClaren, the Secretary fully set forth the sanction policy as
and we may not overturn the Secretary’s choice of sanction described in S.S. Farms Linn County, Inc. While the
unless it is unwarranted in law or without justification in fact. Secretary did not explicitly describe the remedial purposes of
See Havana Potatoes of New York Corp. v. United States PACA, the Secretary noted that “[t]he purpose of a sanction
Dep’t of Agric., 136 F.3d 89, 91, 93 (2d Cir. 1997) in a PACA administrative disciplinary proceeding is to deter
(considering under an abuse of discretion standard whether the violator and other potential violators from future
the Secretary’s choice of sanction was based on an erroneous violations of the PACA.” Considering this purpose, the
policy regarding sanctions and whether the Judicial Officer Secretary concluded that a civil monetary penalty would not
misapplied the USDA sanction standard, and noting that the sufficiently deter MacClaren and other potential violators
Secretary’s choice of sanction is not to be overturned unless from future violations of PACA and that license revocation
it is unwarranted in law or without justification in fact ); was necessary to deter such violations.
Norinsberg Corp. v. United States Dep’t of Agric., 47 F.3d
1224, 1228 (D.C. Cir. 1995) (analyzing appellant’s argument The sanction policy states that it is “the nature of the
that the Secretary failed to consider all relevant circumstances violations” that is to be examined “in relation to the remedial
for an abuse of discretion and recognizing that the Secretary’s purposes” of PACA, not the actions taken after the violations,
choice of sanction cannot be overturned unless it is which could be, and were, considered as relevant
unwarranted in law or unjustified in fact). circumstances. The nature of the violations at issue, altering
inspection certificates and falsifying accounts resulting in
According to MacClaren, the remedial purpose of PACA is losses to shippers in excess of $136,000, indicates that
to “assure that only financially responsible brokers are in MacClaren was not a financially responsible dealer. The
business so that growers are paid for the produce they Secretary set forth the specific violations of PACA and noted
supply.” MacClaren admits in its reply brief, however, that that the number of violations and the seriousness of the
“deterring irresponsible and unscrupulous conduct” is also violations were factors in determining that revocation of
part of PACA’s “remedial purpose.” MacClaren points out MacClaren’s license was warranted. Therefore, the Secretary
that its actions of investigating the wrongdoing and making properly considered the nature of the violations in relation to
restitution indicate financial responsibility. MacClaren the remedial purposes of the PACA. Cf. ABL Produce, Inc.
argues that the Secretary’s decision to impose the sanction of v. United States Dep’t of Agric., 25 F.3d 641, 646 (8th Cir.
revocation, as opposed to a civil monetary penalty, did not 1994) (noting that “consideration of the ‘relevant
properly consider the benefits of a civil monetary penalty, circumstances’ should include consideration of the statute’s
including promoting the remedial purposes of PACA and purpose” and finding that license revocation was not
encouraging dealers suspected of violations to cooperate with appropriate after examining all relevant circumstances).
investigators and make restitution. Moreover, MacClaren
contends that the Secretary ignored relevant circumstances MacClaren also claims that the Secretary failed to consider
such as “who will be most affected by the sanction, the all relevant circumstances before deciding to revoke its
deception of the salesmen’s acts and the lack of any prior license. MacClaren complains that the sanction of license
violations by the company.” revocation falls exclusively on Gregory MacClaren and
Darrell Moccia, while Olds and Gottlob are not subject to any
No. 02-3006 H.C. MacClaren, Inc. v. 11 12 H.C. MacClaren, Inc. v. No. 02-3006
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penalty. The sanction, however, falls entirely on MacClaren to be weighed in a sanction determination. See generally,
as a company. Furthermore, because Olds, Gottlob and Norinsberg, 47 F.3d at 1227 (considering relevant
Johnston were acting within the scope of their employment circumstances such as the company’s financial difficulties,
when they knowingly and willfully violated PACA, their accords reached with suppliers, and the potential harm to the
knowing and willful violations are deemed to be knowing and company’s creditors from suspending its license). Similarly,
willful violations by MacClaren. Under PACA, “the act, while retention of employees who commit violations of
omission, or failure of any agent, officer, or other person PACA is not directly prohibited by PACA, the retention of
acting for or employed by any commission merchant, dealer, such employees may be considered relevant in determining
or broker, within the scope of his employment or office, shall whether license suspension or revocation is required to deter
in every case be deemed the act, omission, or failure of such future violations. Moreover, as noted above, MacClaren is
commission merchant, dealer, or broker as that of such agent, deemed to have committed the knowing and willful violations
officer, or other person.” 7 U.S.C. § 499p. According to the committed by its employees, and, therefore, the Secretary
Sixth Circuit, acts are “willful” when “knowingly taken by properly considered the aggravating factors inherent in the
one subject to the statutory provisions in disregard of the employees’ violations. Accordingly, the Secretary considered
action’s legality.” Hodgins v. United States Dep’t of Agric., all relevant circumstances as required in S.S. Farms Linn
No. 97-3899, 2000 WL 1785733 (6th Cir. Nov. 20, 2000) County, Inc. in deciding to impose the sanction of license
(quotation omitted). “Actions taken in reckless disregard of revocation.
statutory provisions may also be considered ‘willful.’” Id.(quotation and citations omitted). The MacClaren employees MacClaren next claims that the Secretary erred in imposing
admitted to altering USDA inspection certificates and issuing a sanction of license revocation as a result of MacClaren’s
false accounts of sale in knowing disregard of their actions’ violations of PACA. As we previously noted, the Secretary’s
legality. Accordingly, their willful violations are deemed decision regarding an appropriate sanction may only be
willful violations by MacClaren. overturned if it is found to be unwarranted in law or without
justification in fact. Butz v. Glover Livestock Comm’n Co.,
MacClaren asserts that all of the aggravating factors listed Inc., 411 U.S. 182, 185-86 (1973); Harry Klein Produce
by the Secretary were caused by the salesmen with the Corp. v. United States Dep’t of Agric., 831 F.2d 403, 406 (2d
exception of MacClaren’s negligent supervision and its Cir. 1987). An appellate court may not reweigh the evidence
retention of the salespersons who engaged in the unlawful or substitute its judgment for that of the Secretary. Havana
conduct, and, according to MacClaren, consideration of these Potatoes, 136 F.3d at 91. “The fashioning of an appropriate
two factors is inappropriate. MacClaren fails to cite any and reasonable remedy is for the Secretary, not the court.”
authority supporting its argument that these factors are not Glover Livestock Comm’n Co., 411 U.S. at 188-89. “The
relevant or otherwise should not be considered. According to court may decide only whether under the pertinent statute and
MacClaren, the Secretary improperly established a new duty relevant facts, the Secretary made ‘an allowable judgment in
under PACA that supervisors review some undesignated (his) choice of the remedy.’” Id. at 189 (quoting Jacob Siegel
portion of a salesperson’s files and that failure to do so Co. v. Federal Trade Comm’n, 327 U.S. 608, 612 (1946)).
constitutes negligent supervision. The Secretary, however,
properly considered the management and supervision of MacClaren argues that the sanction imposed is without
employees in a highly regulated industry as a relevant factor justification in fact. Specifically, MacClaren claims that there
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United States Dep’t of Agric. United States Dep’t of Agric.
is no evidence to support the Secretary’s determination that are sufficiently supported by facts set forth by the Secretary.4
license revocation is necessary to deter future violations. With regard to deterrence, the Secretary found as follows:
MacClaren asserts that it has acted to rectify the wrongdoing
and prevent future violations and argues that these remedial [I]n light of the number of [MacClaren’s] willful
actions should be taken into consideration. In addition, violations, the seriousness of [MacClaren’s] willful
MacClaren contends that the Secretary’s finding that Gregory violations, the 29-month period during which the
MacClaren and Darrell Moccia would have known about the violations occurred, the number of [MacClaren’s]
altered inspections and false accountings if they had properly employees who altered United States Department of
supervised their salesmen is without justification in fact. Agriculture inspection certificates and made false
accounts of sales, the amount of money which
License revocation under PACA is authorized where the [MacClaren] underpaid its produce suppliers and/or
violation is “flagrant or repeated.” 7 U.S.C. § 499h(a); brokers, [MacClaren’s] retention of the salespersons who
Norinsberg Corp., 47 F.3d at 1225. In determining whether engaged in the unlawful conduct, and [MacClaren’s]
violations are “flagrant” under PACA, the court considers principal’s failure to review transaction files prepared by
“the number of violations, the amount of money involved, [its] salespersons, I conclude a civil penalty would not be
and the time period during which the violations occurred.” sufficient to deter [MacClaren] and other potential
Allred's Produce, 178 F.3d at 748. “Repeated” violations violators from future violations of the PACA.
under PACA are violations that are not committed
simultaneously. Id. The Secretary found that MacClaren’s In determining whether Gregory MacClaren and Darrell
violations of PACA were both flagrant and repeated. The Moccia were negligent in failing to review their salesmen’s
Secretary’s findings are supported by the record. Three of transaction files, the Secretary considered the requirements of
MacClaren’s four salesmen admitted to altering fifty-three
inspection certificates over a twenty-nine month period 4
resulting in underpayments totaling $130,903 to twenty-two MacClaren argues that there is little in this case to suggest that
suppliers. These violations meet the definitions of flagrant license revocation, rather than a civil mo netary p enalty, is nec essary to
deter it or others from future violations of PACA. MacC laren points out
and repeated. Therefore, the revocation of MacClaren’s that a civil monetary penalty would seem esp ecially ap propriate in this
license was well within the Secretary’s authority and case where the imposition of such a penalty, as opposed to revocation,
discretion. See Allred’s Produce, 178 F.3d at 747 (agreeing would encourage other d ealers to cooperate with investigators and attempt
with the Secretary that Allred’s violations of PACA were to make restitution. We recognize the merit in MacClaren’s argument.
flagrant and repeated and therefore holding that the Secretary W e do note, however, that a while imposing a civil monetary penalty as
did not abuse his discretion in revoking a dealer’s license). opposed to license revo cation may en courage coop eration, it would not
be as effective a deterrent because violators might believe that they could
com mit violations and, if caught, simply cooperate and pay restitution and
Moreover, the Secretary’s legal conclusions that license monetary penalties. In the instant case, we are limited to determin ing
revocation was necessary to deter future violations and that only whether the Secretary made an allowable judgment in the choice of
Gregory MacClaren and Darrell Moccia were negligent in reme dy. Glover Livestock Comm’n Co., 411 U.S. at 189. Both revocation
failing to review transaction files prepared by their salesmen and a civil penalty were pro per p ossible remedies in this case. We are not
at liberty to reexamine the aggravating and mitigating evidenc e to
determine whether we would have arrived at some lesser sanction, such
as a civil p enalty. See Havana Po tatoes, 136 F.3d at 91.
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United States Dep’t of Agric.
PACA, testimony from an experienced manager in the
produce sales industry, and testimony from the USDA
sanction witness. Based on the prohibitions set forth in
PACA and the testimony that appropriate supervision by a
manager includes reviewing a salesperson’s transaction files,
at least on a random sampling basis, the Secretary concluded
that “failure to review a least a portion of the transaction files
prepared by . . . salespersons constitutes gross negligence.”
Because these legal conclusions are sufficiently supported by
evidence in the record, the Secretary’s decision to revoke
MacClaren’s PACA license was justified in fact and was not
an abuse of discretion.
III.
For all the reasons set forth above, we affirm the decision
of the Secretary.