No. 98-1211
In the Supreme Court of the United States
OCTOBER TERM, 1998
KANOWITZ FRUIT AND PRODUCE CO., INC., PETITIONER
v.
UNITED STATES OF AMERICA, ET AL.
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
BRIEF FOR THE RESPONDENTS IN OPPOSITION
SETH P. WAXMAN
Solicitor General
Counsel of Record
DAVID W. OGDEN
Acting Assistant Attorney
General
ANTHONY J. STEINMEYER
FRANK A. ROSENFELD
Attorneys
Department of Justice
Washington, D.C. 20530-0001
(202) 514-2217
QUESTIONS PRESENTED
1. Whether the Secretary of Agriculture acted arbitrarily and capriciously
in revoking petitioner's license as a dealer in perishable agricultural
commodities, rather than imposing a fine, as the sanction for petitioner's
repeated late payment of suppliers.
2. Whether the Secretary, in making his decision on the level of sanctions
to apply to petitioner, was required to consider certain additional factors.
In the Supreme Court of the United States
OCTOBER TERM, 1998
No. 98-1211
KANOWITZ FRUIT AND PRODUCE CO., INC., PETITIONER
v.
UNITED STATES OF AMERICA, ET AL.
ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
BRIEF FOR THE RESPONDENTS IN OPPOSITION
OPINIONS BELOW
The opinion of the court of appeals (Pet. App. 1a-6a) is unpublished, but
the decision is noted at 166 F.3d 1200 (Table). The opinions of the Judicial
Officer of the Department of Agriculture (Pet. App. 7a-31a, 32a-71a) and
of the administrative law judge (Pet. App. 72a-83a) are unreported.
JURISDICTION
The judgment of the court of appeals was entered on October 29, 1998. The
petition for a writ of certiorari was filed on January 27, 1999. The jurisdiction
of this Court is invoked under 28 U.S.C. 1254(1).
STATEMENT
1. In 1930, Congress enacted the Perishable Agricultural Commodities Act
(PACA), 7 U.S.C. 499a-499s (1994 & Supp. III 1997). That law sought
to prevent unfair and fraudulent practices in the perishable products industry
against the producers of perishable agricultural products, who routinely
must ship their goods to dealers thousands of miles away and who are unusually
vulnerable to abuses by dealers. See S. Rep. No. 2507, 84th Cong., 2d Sess.
3 (1956). PACA requires a dealer in perishable agricultural commodities
to obtain a license from the Secretary of Agriculture. See 7 U.S.C. 499c
(1994 & Supp. III 1997). The Act then makes it unlawful for a licensed
dealer "to fail * * * [to] 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). Pertinent Agriculture regulations define
"full payment promptly" as "[p]ayment for produce purchased
by a buyer, within 10 days after the day on which the produce is accepted,"
unless the parties "elect to use different times of payment,"
in which case they "must reduce their agreement to writing before entering
into the transaction." 7 C.F.R. 46.2(aa)(5) and (11).
If a dealer violates those provisions, the Secretary may suspend its license;
if the violation is "flagrant or repeated," the Secretary may
entirely revoke the license. See 7 U.S.C. 499h(a). As an alternative to
suspension or revocation, the Secretary may instead assess a civil penalty
of up to $2000 "for each violative transaction or each day the violation
continues." 7 U.S.C. 499h(e) (Supp. III 1997).
2. Petitioner is a fruit and produce dealer located at the Brooklyn Terminal
Market in Brooklyn, New York. Pet. App. 37a. After an investigation, the
Secretary filed an administrative complaint against petitioner in 1994,
alleging that from February through November 1993, petitioner had failed
to make full payment promptly to 18 sellers of produce, and that as of the
date of the complaint it owed those sellers $206,850.60 for unpaid and past-due
payments. Id. at 2a. Petitioner contended that the sellers had agreed to
the late payments, and that it had delayed making the payments because of
financial difficulties that were caused by what petitioner said was the
theft of $300,000 to $400,000 of its inventory by employees. The police
found insufficient evidence of the thefts to warrant prosecution. Id. at
2a, 37a.
In 1996, the Secretary inspected petitioner's records and then filed an
amended complaint alleging that, although petitioner had by then paid the
earlier past-due amounts that were up to two years late, petitioner had
incurred new past-due debts for its produce purchases between January 1994
and January 1996 in an amount totaling $195,495.10. By the time of the hearing
before an administrative law judge (ALJ), petitioner showed that it had
paid off those amounts as well, but the ALJ found that petitioner now owed
approximately $125,000 for produce that it had accepted since the filing
of the amended complaint. Pet. App. 2a-3a. The ALJ found that petitioner
had been rolling over its debt, that is, paying off its existing debt by
delaying payment for later shipments of produce. Id. at 3a. The ALJ concluded
that petitioner had no written agreements with any sellers to extend the
payment terms. Id. at 76a. Accordingly, the ALJ found that revocation of
petitioner's license was the proper sanction because petitioner's violations
of the prompt payment requirements of the statute and regulations were repeated,
flagrant, and willful. See id. at 3a, 42a-43a, 79a- 80a.
Petitioner appealed to the Department of Agriculture's Judicial Officer,
but the Judicial Officer adopted the ALJ's decision as the final decision
of the Secretary, after making minor changes in the ALJ's opinion and adding
extensive discussion of his own. See Pet. App. 32a-71a. The Judicial Officer
rejected petitioner's defenses, including its argument that mitigating circumstances
make revocation of its license too harsh a penalty. The Judicial Officer
explained that "because of the peculiar nature of the perishable agricultural
commodities industry, and the congressional purpose that only financially
responsible persons should be engaged in the perishable agricultural commodities
industry, excuses for nonpayment in a particular case are not sufficient
to prevent a license revocation where there have been repeated failures
to pay a substantial amount of money over an extended period of time."
Id. at 59a.
Petitioner sought reconsideration, but the Judicial Officer denied the petition
with another lengthy opinion. Pet. App. 7a-31a. The Judicial Officer noted
that "the revocation order in this proceeding is not being issued for
any punitive reasons. * * * There is nothing inherently evil in being unable
to pay one's creditors promptly. But, there is no place in the highly-regulated
perishable agricultural commodities industry for a firm that paid produce
sellers from 2 weeks to 117 weeks late in violation of the PACA." Id.
at 18a. The Judicial Officer granted petitioner's request for a stay of
the license revocation pending judicial review. Id. at 4a.*
3. Petitioner sought judicial review of the Secretary's final decision in
the court of appeals, but that court denied the petition and directed enforcement
of the revocation order. Pet. App. 1a-6a. Noting that PACA is "an intentionally
rigorous law," id. at 4a (quoting Harry Klein Produce Corp. v. United
States Dep't of Agric., 831 F.2d 403, 405 (2d Cir. 1987)), the court of
appeals concluded that the factual findings are supported by substantial
evidence; the findings of petitioner's violations as flagrant and repeated
are not an abuse of discretion; and the regulations' strict definition of
prompt payment, which requires that agreements by suppliers to longer payment
terms must be in writing, are not arbitrary, capricious, or contrary to
the statute. Id. at 5a. The court rejected petitioner's argument that there
are mitigating factors, such as embezzlement by its employees, that make
license revocation unfair, concluding that "financial difficulties
are likely to be the cause of PACA prompt-payment violations in virtually
all cases, and the statute would have little meaning if the administrative
sanction of license revocation were never used where a buyer persistently
violates PACA because of an ongoing lack of funds." Id. at 6a (quoting
Havana Potatoes of New York Corp. v. United States, 136 F.3d 89, 94 (2d
Cir. 1997)).
ARGUMENT
The decision of the court of appeals is correct and does not conflict with
the decision of any other circuit. Review by this Court is therefore not
warranted.
1. As the court of appeals, the Judicial Officer, and the administrative
law judge (ALJ) each explained, the Perishable Agricultural Commodities
Act (PACA) imposes unusually strict requirements on dealers, based upon
the distinctive nature of the interstate trade in fruits and vegetables.
A producer of perishable produce must contract with and ship to dealers
very quickly to enable the produce to reach consumers before spoiling. For
the same reason, the dealer in turn must quickly arrange for further transshipment
of fresh produce to the places of ultimate sale to consumers. Thus, because
the producer's goods have already been resold by the dealer, the producer
has reduced recourse against a dealer who does not make quick payment to
the producer. Because of that characteristic of the perishable commodities
market, Congress established a strict licensing scheme for perishable produce
dealers and the Secretary adopted regulations requiring payment to be made
either within 10 days of shipment or, if later, under the terms of a pre-existing
written agreement. Petitioner argues for leniency based upon what it alleges
to be informal industry practice, but the Act and its regulations do not
recognize such informal exceptions to the strict rule of prompt payment.
2. Petitioner does not dispute that its actions violated the statute and
regulations. Rather, petitioner appears to dispute only the severity of
the sanction imposed upon it-revocation of its license. Pet. 14. Indeed,
petitioner does not even appear to dispute that its violations were repeated
and intentional, ranging over a period of more than three years. According
to several inspections of petitioner's records, petitioner delayed payment
on hundreds of lots of produce to dozens of sellers, constantly maintained
overdue debt that ranged between $125,000 and more than $200,000, and failed
to obtain any written agreements with sellers that would have permitted
those late payments to comply with applicable regulations. Consequently,
petitioner agrees that the Secretary properly could impose at least some
sanction on it. Ibid.
Petitioner argues, however, that the Secretary acted arbitrarily and capriciously
in revoking its license, instead of imposing a fine. Pet. 9-12. That issue
does not merit this Court's review. As this Court explained in the closely-related
context of the Packers and Stockyards Act, 1921, 7 U.S.C. 181 et seq., the
Secretary's choice of sanction for a violation of a statutory standard "is
peculiarly a matter for administrative competence." Butz v. Glover
Livestock Comm'n Co., 411 U.S. 182, 185 (1973) (quoting American Power &
Light Co. v. SEC, 329 U.S. 90, 112 (1946)). Petitioner essentially asks
this Court to re-examine the exercise of discretion by the ALJ in making
the initial decision and by the Judicial Officer in reviewing and adopting
it-an exercise of discretion that was reviewed and upheld by the court of
appeals under the applicable statutory standards.
Indeed, petitioner's principal argument (Pet. 9-10) is that the Secretary
erred as to only one narrow matter: placing no significance on petitioner's
having obtained approval of a Small Business Administration (SBA) loan in
the amount of $250,000, which petitioner alleges would have enabled it to
become current on past-due accounts and to pay a fine. Because the loan
was conditional on petitioner's retaining its license, petitioner argues
that if the Secretary had only imposed a fine, it could remain in business
and finally overcome the ongoing effects of its employees' past embezzlement.
The Judicial Officer rejected that argument, concluding that a financing
arrangement such as petitioner's SBA loan "is not payment in accordance
with the PACA and is therefore not relevant to the issue of the existence
of [petitioner's] roll-over debt." Pet. App. 15a.
That decision is not arbitrary or capricious. Although in ordinary commercial
relations it might be acceptable for a dealer in financial difficulty to
obtain a loan enabling repayment of overdue debts to suppliers, PACA does
not tolerate such practices. The statute is not simply a scheme to assure
that suppliers are eventually paid. Rather, it requires immediate payment
of suppliers, or a formal agreement in advance to delay payment, in recognition
of the special circumstances of interstate trade in perishable produce.
The Act thus authorizes revocation of the license of any perishable commodities
dealer who, like petitioner, repeatedly and intentionally fails to make
timely payments to its suppliers. The Secretary was therefore entitled to
disregard petitioner's last-minute efforts to deal with its persistent practice
of rolling over its debts, since petitioner engaged in that illegal practice
so consistently for more than three years.
3. Petitioner next argues (Pet. 12-19) that the court of appeals erred by
failing to apply a "relevant factors" test, pursuant to which
petitioner asserts that a reviewing court may reduce the severity of the
penalty after considering three criteria: whether the licensee's actions
threatened to undermine the purposes of the Act, whether any mitigating
circumstances excuse the violation, and whether the sanction imposed would
have an unduly harsh effect on the company. Petitioner is mistaken in seeking
to apply those factors in this case.
a. Petitioner asserts (Pet. 12-13) that the Eighth Circuit has adopted a
"relevant factors" test in two cases, and thus that the decision
below conflicts with those decisions. That contention is without merit.
The Eighth Circuit cases upon which petitioner relies concern violation
of a different provision of PACA from the one at issue in this case. The
severity of the respective violations in the Eighth Circuit cases is not
comparable to the repeated and flagrant violations committed by petitioner
in this case. Both Eighth Circuit cases, Conforti v. United States, 74 F.3d
838, cert. denied, 519 U.S. 807 (1996), and ABL Produce, Inc. v. United
States Department of Agriculture, 25 F.3d 641 (1994), involved a provision
of PACA that prohibits a licensee from employing any person who is or has
been "responsibly connected" with any other company whose license
has been revoked or is currently suspended, or which has outstanding reparation
orders. 7 U.S.C. 499h(b)(1) and (3). In each case, an ALJ had imposed a
30-day suspension on a licensee for employing such a responsibly-connected
person, the Judicial Officer had imposed a harsher sanction, and the court
of appeals reinstated the ALJ's original 30-day suspension, citing certain
mitigating circumstances. Those decisions reflect what the court there held
to be less serious violations of PACA. The Eighth Circuit reasoned that
the employment by a licensee of a person who was involved with another company
that violated the Act, while a serious matter, does not directly involve
the Act's core purpose of reducing the risk of non-payment of produce suppliers.
See Conforti, 74 F.3d at 842; ABL, 25 F.3d at 646. The Eighth Circuit justified
its more searching review by contrasting the PACA violations in those cases
with a licensee's failure to make timely payments. See ibid. The Eighth
Circuit's own rationale thus makes its decisions inapplicable to the present
case.
Moreover, the Eighth Circuit also relied on other factors that distinguish
those cases from this one. In ABL, the court of appeals noted that the licensee
had made good faith efforts to prevent the banned person from routinely
taking orders or otherwise handling its business. See 25 F.3d at 646. In
Conforti, the court explained that the banned person was only a "front
man" who lacked actual authority or an interest in the licensee. See
74 F.3d at 842. Those cases thus do not resemble the present case, in which
the licensee itself violated the affirmative provisions of the Act by persistently
and intentionally making late payments over several years. Petitioner's
claim of a "conflict," therefore, is unpersuasive.
b. In any event, even if the three "relevant factors" that petitioner
cites should be assessed in a decision whether to revoke a license for failure
to make timely payments, a proper application of that test would not cast
doubt on the Secretary's decision to revoke petitioner's license. Petitioner
first argues (Pet. 13) that revocation of its license undermines the purposes
of PACA because the Act seeks to assure that produce dealers are financially
responsible, and its SBA loan arrangement would have saved the company and
made it sound, rather than make it bankrupt and thus unable to pay its debts
in full. That argument is not persuasive because, as the administrative
decisions and the court of appeals' opinion stressed, the actual purpose
of PACA is not simply to secure eventual payment of suppliers but rather
to assure their routine prompt payment. If petitioner had not flagrantly
violated the Act over a period of several years and had sought to remedy
the situation more promptly, its suppliers would not have to face the risk
of petitioner's possible bankruptcy. License revocation will prevent petitioner
from repeating its past violations and deter other licensees from similar
behavior in the future.
Petitioner's other "relevant factors" are of even less merit.
Petitioner's deliberate and consistent disregard of the plain terms of the
Act and regulations is not excused by its claims to having been victimized
by an alleged embezzlement. As the court of appeals explained, businesses
routinely delay paying their creditors due to financial difficulties not
of their own making. See Pet. App. 6a. But PACA provides that companies
which find themselves in such financial straits may not continue to buy
perishable fruits and vegetables and deliberately delay paying for them
in order to pay old debts to suppliers.
Petitioner's third "relevant factor" does not logically apply
here. Concern about the unintended consequences of a too-harsh sanction
was found relevant in the Eighth Circuit cases, where the court of appeals
thought that a 90-day suspension would, as a practical matter, simply put
the licensee out of business, see Conforti, 74 F.3d at 843, and where revocation
of the license would require the company's owner, in turn, to disassociate
himself from his other PACA licensee, see ABL, 25 F.3d at 646. Here, petitioner
makes no such argument about an indirect collateral effect. It argues only
that revocation of its license will put it out of business and take away
the jobs of its employees. Pet. 14. But the Act and its regulations anticipate
that the licenses of some dealers will be revoked, and it is within the
Secretary's discretion to take that action against dealers that have repeatedly
failed to make timely payments to suppliers.
CONCLUSION
The petition for a writ of certiorari should be denied.
Respectfully submitted.
SETH P. WAXMAN
Solicitor General
DAVID W. OGDEN
Acting Assistant Attorney
General
ANTHONY J. STEINMEYER
FRANK A. ROSENFELD
Attorneys
APRIL 1999
* While the stay apparently expired when the court of appeals issued its
mandate, the Department of Agriculture informs us that it will not enforce
the revocation of petitioner's license until this Court finally disposes
of this petition.