John J. Conforti etc v. United States ( 1996 )

No. 95-1735
John J. Conforti, doing *
business as C & C Produce, *
*
Petitioner, *
* Appeal from the United States
v. * Department of Agriculture.
*
United States of America, *
*
Respondent. *
Submitted: September 11, 1995
Filed: January 18, 1996
Before WOLLMAN, LOKEN, and MORRIS SHEPPARD ARNOLD, Circuit Judges.
MORRIS SHEPPARD ARNOLD, Circuit Judge.
John Conforti appeals the Secretary of Agriculture's decision
sanctioning him for violating the employment restrictions in the
Perishable Agricultural Commodities Act of 1930, 7 U.S.C. § 499h(b)
(1980) ("PACA"). We uphold the Secretary's determination that
Conforti violated PACA, but modify the penalty that the Secretary
imposed.
I.
PACA was enacted to protect produce growers "from the 'sharp
practices of financially irresponsible and unscrupulous brokers in
perishable commodities.'" In re Lombardo Fruit & Produce Co.,
12 F.3d 110, 112 (8th Cir. 1993) (quoting Hull Co. v. Hauser's
Foods, Inc., 924 F.2d 777, 780 (8th Cir. 1991). PACA requires
wholesale produce dealers to obtain a license from the United
States Department of Agriculture ("USDA"), 7 U.S.C. § 499c(a), and
prohibits licensees from employing individuals "responsibly
connected" to a company that has failed to satisfy USDA reparation
orders. Id. § 499h(b)(3). Under the statute, a person is
responsibly connected to a company if he serves as a partner,
officer, or director of it, or if he holds more than 10 percent of
its outstanding stock. Id. §§ 499a(9).
Conforti operates C&C Produce, a licensed produce dealership.
In June, 1993, Conforti hired Joseph Cali, his life-long friend, to
work for C&C Produce. On June 24, 1993, Conforti received a letter
from the USDA informing him that Cali was responsibly connected to
Royal Fruit, a company with several outstanding reparation orders.
The letter indicated that Conforti could not employ Cali after
July 24, 1993, unless he posted a bond that was later set at
$100,000.
Conforti then tried to obtain a bond. He first asked his
insurance company for one, but it required full collateralization.
He next applied for a line of credit at United Missouri Bank
("UMB") to collateralize the bond, but learned that approval would
take three months. Conforti then decided to post $100,000 of his
own funds to guarantee the line of credit. UMB initially approved
the transaction, but changed its mind after the USDA advised the
loan officer that Conforti's license was going to be revoked.
In November, Conforti secured a line of credit at a different bank,
but when he learned that the insurance company charged an
additional $15,000 fee to issue the bond, he "threw up his hands"
and abandoned his efforts.
Conforti did not fire Cali on July 24 as instructed; he did
not finally fire him until November 19, 1993, after he gave up his
search for a bond. In the interim, the USDA warned Conforti at
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least five times that Cali's continued employment could result in
the suspension or revocation of his PACA license.
Three months after he fired Cali, the USDA filed a complaint
seeking to revoke Conforti's PACA license. The Administrative Law
Judge ("ALJ") found that Conforti had violated PACA and suspended
his license for thirty days. The USDA appealed to the Judicial
Officer ("JO"), who affirmed the ALJ's decision that Conforti
violated PACA but increased the suspension to 90 days. The JO's
decision is the final decision of the Secretary of Agriculture.
7 C.F.R. § 2.35 (1993). Conforti petitioned this court to review
the Secretary's order pursuant to 28 U.S.C. § 2342.
II.
Conforti first argues that the JO improperly found that Cali
was responsibly connected to Royal Fruit. He contends first
that the finding cannot stand in the absence of a predicate finding
in a special hearing on the question of Cali's connection to Royal
Fruit. We disagree. It is true that USDA regulations establish a
procedure to challenge the USDA's "responsibly connected"
designation. 7 C.F.R. §§ 47.48-47.63 (1993). This proceeding,
however, commences after the USDA finds that a person is
responsibly connected, id. § 47.49(a), and nothing in the statute
indicates that PACA's employment restrictions take effect only
after this proceeding is completed. The statute straightforwardly
prohibits employing anyone who is a responsibly connected person as
defined by PACA. 7 U.S.C. § 499h(b). Thus, if the record contains
evidence that Cali was a partner, director, or officer in Royal
Fruit, or held more than 10 percent of Royal Fruit's stock, his
employment is restricted and Conforti violated PACA by employing
him. Id. § 499a(9).
Conforti also maintains that even if a previous hearing under
7 C.F.R. §§ 47.48-47.63 was not required, the record lacks evidence
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indicating that Cali met PACA's definition of a responsibly
connected individual. This argument is without merit. Prior to
issuing his final order, the JO took official notice of an ALJ's
opinion in In re Midland Banana and Tomato Co., PACA Docket No.
D-93-548, and In re Royal Fruit, PACA Docket No. D-93-549 (USDA
1994) ("Royal Fruit"). In Royal Fruit, the ALJ found that Cali was
the President and a director of Royal Fruit and that he held 50
percent of the company's stock. Given these previous findings, we
believe that the JO was justified in concluding that Cali was
responsibly connected.
Conforti contends that the JO was not entitled to consider
these previous findings because he improperly used the device of
official notice. We find no error in the JO's procedure. USDA
regulations allow the JO to take official notice of "such matters
as are judicially noticed by the courts of the United States,"
7 C.F.R.§ 1.141(g)(6) (1993), and the USDA Rules of Practice permit
the JO to consider "any matter of which official notice is taken."
7 C.F.R. 1.145(i) (1993). We have held that "federal courts may
sua sponte take judicial notice of proceedings in other courts if
they relate directly to the matters at issue." Hart v. Comm'r, 730
F.2d 1206, 1207 n.4 (8th Cir. 1984); see also United States v.
Jackson, 640 F.2d 614, 617 (1981). The JO also gave Conforti the
required opportunity to object to the order taking official notice.
5 U.S.C. § 556(e).
Alternatively, Conforti contends that Cali is not responsibly
connected because he played only a minor role in Royal Fruit.
Conforti points to the ALJ's findings in Royal Fruit that Cali was
by-and-large a "front man" and that Royal Fruit was actually the
"alter ego" of Robert Heimann. Conforti argues that, under the
doctrine adopted in Quinn v. Butz, 510 F.2d 743, 756 (D.C. Cir.
1975), Cali's nominal status in Royal Fruit merely raises a
rebuttable presumption that he is responsibly connected.
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The central difficulty that Conforti's argument encounters is
that we specifically rejected it ten years ago. See Pupillo v.
United States, 755 F.2d 638, 643 (8th Cir. 1985). We apply a
per se rule: "Section 499a(9) [is] an irrebuttable statement that
an officer, director, or holder of more than ten percent of the
outstanding stock of a corporation is responsibly connected
with that corporation or association." Id. Cali's actual
responsibilities or interests in Royal Fruit are, therefore,
irrelevant to the question of whether he was responsibly connected;
because he was both an officer in the company and held 33 percent
of its stock, he was responsibly connected as a matter of law.
Because we find that the JO's decision that Cali was a
responsibly connected person is supported by substantial evidence,
we affirm it. Pupillo, 755 F.2d at 643.
III.
Conforti also asserts that he did not violate PACA because he
made a good faith effort to obtain a bond and because the USDA led
him to believe that he could continue to employ Cali while he was
searching for a bond. We see how Conforti could have gotten this
impression from his communications with the USDA. Although the
USDA initially told Conforti to obtain a bond or fire Cali by
July 24, the USDA did not set the bond amount until July 16,
leaving very little time before the deadline. Conforti then asked
the USDA to reduce the bond; the USDA denied his request on
August 9. The August 9 letter reiterated that Conforti needed
either to obtain a bond or fire Cali, but it did not mention the
July 24 deadline. On July 30, the USDA sent a letter asking
Conforti whether he intended to fire Cali or to obtain a bond.
Finally in November, after Conforti stopped looking for a bond,
M.A. Clancy, the PACA Licensing Program Review Head, advised him
that if he could not post a bond, he should fire Cali.
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Conforti does not cite any authority to support his official
estoppel argument, and we know of none. In point of fact, the
Supreme Court has repeatedly indicated that an estoppel will rarely
work against the government. See, e.g., Office of Personnel
Management v. Richmond, 496 U.S. 414, 423 (1990). As the Court has
noted, "When the government is unable to enforce the law because
the conduct of its agents has given rise to an estoppel, the
interests of the citizenry as a whole in obedience to the rule of
law is undermined." Heckler v. Community Health Services, 467 U.S.
51, 61 (1984). Therefore, in the absence of "affirmative
misconduct" by the government, INS v. Hibi, 414 U.S. 5, 8 (1973),
"not even the temptations of a hard case" like Conforti's justify
applying an estoppel against the USDA. Federal Crop Ins. Co. v.
Merrill, 332 U.S. 380, 386 (1947).
We strictly construe PACA's employment restriction, see Hull
Co. v. Hauser's Foods, 924 F.2d 777, 782 (8th Cir. 1991); Pupillo,
755 F.2d at 643, and, as the D.C. Circuit has noted, the
"employment bar is phrased as an absolute." Siegel v. Lyng, 851
F.2d 412, 415 (D.C. Cir. 1988); 7 U.S.C. § 499h(b) ("The Secretary
may . . . suspend or revoke the license of any licensee who, after
the date given in such notice, continues to employ any person in
violation of this section."). Therefore, Conforti's good faith
efforts, however sincere, cannot excuse his failure to fire Cali.
IV.
After the Secretary determines that a licensee violated PACA's
employment restrictions, he may suspend or revoke the license.
7 U.S.C. § 499h. Conforti argues that suspending his license for
90 days was unduly harsh. We review the Secretary's sanction for
an abuse of discretion, affirming it unless it is "without
justification in fact." ABL Produce v. U.S.D.A., 25 F.3d 641, 645
(8th Cir. 1994). Even under this deferential standard, we agree
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that a 90-day suspension was not justified by the facts. We
therefore reverse the JO's sanction and reinstate the ALJ's 30-day
license suspension.
In ABL Produce, 25 F.3d at 645, a license-holder challenged an
order revoking his license for violating PACA's employment
restrictions. We reversed the sanction and reinstated the 30-day
suspension awarded by the ALJ because the JO failed to consider
several "relevant factors," namely, whether the company's conduct
threatens to undermine PACA's purposes, the circumstances of the
violation, and the effect the sanction will have on the company.
Id. at 646. We apply these considerations to the case at hand.
A.
The JO found that by employing Cali, Conforti threatened to
undermine PACA's purposes. As we have already noted, PACA was
designed to protect produce growers from "sharp" and "unscrupulous"
practices of financially irresponsible brokers. In re Lombardo
Fruit & Produce Co., 12 F.3d at 112. Congress was particularly
concerned about the risk of non-payment. ABL Produce, 25 F.3d at
646.
The record in this case is devoid of evidence that Conforti is
in any way a threat to produce growers. C&C Produce is financially
healthy, and Conforti's suppliers themselves characterized his
payment practices and ethics as "exemplary." The JO disregarded
this information, however, concluding that "Mr. Conforti's ethics,
payment practices, complaints against C&C produce and the financial
health of Mr. Conforti's company are irrelevant." Given the fact
that PACA was intended to protect suppliers, we do not see how this
kind of information can be characterized as irrelevant. The JO
therefore erred when he refused to consider it.
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The JO further found that employing Cali threatened the
industry because he was responsibly connected to Royal Fruit. As
we have already said, however, Cali was simply a "front-man" who
lacked both authority and an actual interest in Royal Fruit. The
ALJ considered Cali's "front man" status and concluded that "to say
that Mr. Cali was a great risk to the industry is hyperbole." The
JO, on the other hand, disregarded Cali's limited involvement
because it "did not lessen the responsibility of Mr. Cali for
Royal's PACA violations."
We agree entirely, as we said above, that the extent of Cali's
participation has no bearing on whether he is responsibly connected
to Royal Fruit. Pupillo, 755 F.2d at 643. We believe, however,
that his actual position at Royal Fruit is relevant to whether
Cali's employment at C&C Produce threatened the produce industry.
By disregarding the fact that Cali's role in Royal Fruit was
de minimis, therefore, the JO overstated the threat that Cali's
employment posed to the produce industry.
B.
The JO also increased the ALJ's sanction because Conforti
"deliberately chose not to heed [the government's] warning" to fire
Cali or obtain a bond. We agree that Conforti should be punished
for employing Cali for four months after the USDA's deadline. We
find, however, that the JO abused his discretion by not considering
the mitigating circumstances in the case.
As the ALJ noted, Conforti "made a diligent and good faith
effort to comply with the complainant's demands that he obtain a
bond." During the period that Conforti employed Cali, he tried to
obtain a bond from several different sources, and he consistently
updated the USDA about his progress. While, as we have said, we do
not agree with Conforti that his diligence absolves him of guilt in
the matter, we do think that, particularly in light of the mixed
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signals sent by the USDA, all of which we rehearsed above, the JO
erred by completely discounting his efforts.
C.
Finally, we think that the JO abused his discretion when he
failed to consider how the 90-day suspension would affect C&C
Produce. Conforti operates a wholesale produce dealership.
Because his customers, primarily restaurants, require daily
service, even a 30-day suspension is likely to have devastating
financial consequences. ABL Produce, 25 F.3d at 647; see also
Capital Produce Co. v. U.S., 930 F.2d 1077, 1081 (5th Cir. 1991)
("The 45-day suspension may destroy or seriously hamper [the
produce company's] relationships with its customers, who depend
upon daily services"). We think that there is every chance that
suspending his license for 90 days will drive Conforti, a man with
a previously spotless record, out of the produce business
altogether.
V.
For the reasons adduced, we affirm the decision of the
Secretary of Agriculture finding that Conforti violated PACA's
employment restrictions. We find, however, that the facts in the
case do not justify the sanction imposed. In light of Conforti's
exemplary record, his diligent efforts to obtain a bond, and Cali's
limited participation in Royal Fruit, we reverse the JO's sanction
and reinstate the ALJ's decision suspending Conforti's PACA license
for 30 days.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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