Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-98-01342/USCOURTS-caDC-98-01342-0/pdf.json

Parties Involved:
JSG Trading Corp.
Petitioner
United States Department of Agriculture
Respondent
United States of America
Respondent

Document Text:

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued April 28, 1999 Decided May 25, 1999

No. 98-1342

JSG Trading Corp.,

Petitioner

v.

United States Department of Agriculture and

United States of America,

Respondents

On Petition for Review of an Order of the

United States Department of Agriculture

Robert M. Adler argued the cause for petitioner. With him

on the briefs were Gary C. Adler and John M. Himmelberg.

M. Bradley Flynn, Attorney, U.S. Department of Agriculture, argued the cause for respondents. With him on the

brief were James Michael Kelly, Associate General Counsel,

and Margaret M. Breinholt, Acting Assistant General CounUSCA Case #98-1342 Document #437872 Filed: 05/25/1999 Page 1 of 19
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sel. Michael E. Robinson and Robert S. Greenspan, Attorneys, U.S. Department of Justice, entered appearances.

Before: Edwards, Chief Judge, Garland, Circuit Judge,

and Buckley, Senior Circuit Judge.

Opinion for the Court filed by Chief Judge Edwards.

Edwards, Chief Judge: On an appeal from a decision of an

Administrative Law Judge ("ALJ"), a Judicial Officer of the

United States Department of Agriculture ("USDA") determined that petitioner JSG Trading Corporation ("JSG") had

violated s 2(4) of the Perishable Agricultural Commodities

Act ("PACA" or "Act"), 7 U.S.C. s 499b(4), by making a

series of payments to the purchasing agents of two separate

tomato buyers, L&P Fruit Corporation ("L&P") and American Banana, at a time when those agents were buying tomatoes from JSG on behalf of their respective employers. The

Judicial Officer subsequently revoked JSG's license to deal in

perishable agricultural commodities.

In this petition for review, JSG challenges the revocation of

its license, alleging that the Judicial Officer was proceeding

from an incorrect legal premise, namely, that any payment by

a produce dealer to a purchasing agent above a de minimis

level constitutes "commercial bribery" in violation of s 2(4) of

PACA. JSG argues that this per se standard represents a

marked departure from prior agency precedent, and that the

case should be remanded for factual findings in accordance

with the correct legal standard.

We agree that, in adopting a per se standard to measure

commercial bribery, the Judicial Officer departed from well

established precedent without adequate justification. We

therefore remand the case to the agency, so that it may either

attempt to justify its creation of a new, per se standard or

make explicit factual findings pursuant to established law.

I. Background

A. Statutory and Regulatory Background

"Congress enacted PACA in 1930 in an effort to assure

business integrity in an industry thought to be unusually

prone to fraud and to unfair practices." Tri-County Wholesale Produce Co. v. USDA, 822 F.2d 162, 163 (D.C. Cir. 1987).

A later Congress summarized the purpose of PACA as follows:

[PACA] is admittedly and intentionally a "tough" law. It

was enacted in 1930 for the purpose of providing a

measure of control and regulation over a branch of

industry which is engaged almost exclusively in interstate commerce, which is highly competitive, and in

which the opportunities for sharp practices, irresponsible

business conduct, and unfair methods are numerous.

The law was designed primarily for the protection of the

producers of perishable agricultural products--most of

whom must entrust their products to a buyer or commission merchant who may be thousands of miles away, and

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depend for their payment upon his business acumen and

fair dealing--and for the protection of consumers who

frequently have no more than the oral representation of

the dealer that the product they buy is of the grade and

quality they are paying for.

S. Rep. No. 84-2507, at 3 (1956). "[T]he goal of ... [PACA is]

that only financially responsible persons should be engaged in

the businesses subject to the Act." Finer Foods Sales Co. v.

Block, 708 F.2d 774, 782 (D.C. Cir. 1983) (citations and

internal quotation marks omitted). To achieve this end, the

Act requires persons who buy or sell significant quantities of

perishable agricultural commodities at wholesale in interstate

commerce to have a license issued by the Secretary of

Agriculture. See 7 U.S.C. s 499c.

Section 2 of the Act makes unlawful a number of activities

by licensees. See id. s 499b. Relevant here is s 2(4), which

makes it unlawful for any commission merchant, dealer, or

broker, in any transaction involving any perishable agricultural commodity, to, inter alia, "fail, without reasonable cause, to

perform any specification or duty, express or implied, arising

out of any undertaking in connection with any such transaction." Id. s 499b(4).

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In 1995, PACA was amended to establish that certain

payments were not illegal under s 2(4). Specifically, the

following sentence was added to s 2(4):

However, this paragraph shall not be considered to make

the good faith offer, solicitation, payment, or receipt of

collateral fees and expenses, in and of itself, unlawful

under this chapter.

Perishable Agricultural Commodities Act Amendments of

1995, Pub. L. No. 104-48, s 9(b)(3), 109 Stat. 424, 430 (1995)

(codified as amended at 7 U.S.C. s 499b(4)). The term

"collateral fees and expenses" was defined as

any promotional allowances, rebates, service or materials

fees paid or provided, directly or indirectly, in connection

with the distribution or marketing of any perishable

agricultural commodity.

Pub. L. No. 104-48, s 9(a), 109 Stat. 424, 429-30 (1995)

(codified as amended at 7 U.S.C. s 499a(b)(13)).

Upon a determination that a commission merchant, dealer,

or broker has violated one of the provisions of s 2, the Act

authorizes the Secretary of Agriculture to publish the facts

and circumstances of the violation, and suspend the offender's

PACA license for up to ninety days. See 7 U.S.C. s 499h(a).

The Secretary may revoke the license if the violation is

"flagrant or repeated." Id.

B. Factual Background

JSG is a New Jersey corporation in the business of buying

and selling produce. In 1988, JSG was issued a PACA

license, and that license was renewed annually thereafter.

Beginning in January 1992, Steve Goodman served as JSG's

president and controlled 75 percent of the company's stock.

At all relevant times, Mr. Goodman was JSG's sole tomato

buyer and seller. The transactions giving rise to the commercial bribery charges in this case originated from JSG's

relationships with two tomato purchasers, L&P and American

Banana, both produce dealers located at the Hunts Point

Market in Bronx, New York.

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The purchasing agents in the disputed L&P transactions

were Tony and Gloria Gentile. Mr. Goodman and Mr. Gentile, as well as their families, apparently enjoyed a close social

relationship. Long before any of the questioned transactions

occurred--in fact, before Mr. Goodman had any relationship

at all with JSG--Mr. Gentile taught Mr. Goodman the tomato

business. The Goodman and Gentile families spent a great

deal of time together, often dining out and going to shows in

Atlantic City.

Mr. Gentile, who was the head tomato buyer for L&P from

1985 through 1991, had a joint account arrangement with

L&P, whereby he would share profits and losses with L&P on

the tomatoes that he purchased. Such joint accounts apparently are common in the New York produce industry. During the time that Mr. Gentile served as a buyer for L&P, he

purchased tomatoes from JSG, as well as from other sellers.

In 1989, Mr. Goodman and Mr. Gentile formed a trucking

company called Dirtbag Trucking Corp. ("Dirtbag"), and each

was issued 75 shares of Dirtbag stock. Dirtbag, which operated out of JSG's office, always had a cash flow problem, and

JSG advanced money to it on a number of occasions. Although JSG was Dirtbag's primary customer, Dirtbag also

provided trucking services to other produce companies.

The purchasing agent in the questioned transactions with

American Banana was Al Lomoriello. American Banana

hired Mr. Lomoriello in 1991, on a joint account basis similar

to L&P's arrangement with Mr. Gentile. According to Mr.

Goodman and Mr. Lomoriello, Mr. Lomoriello sometimes

provided various services to JSG, including delivering produce, collecting accounts receivable, and providing Mr. Goodman with pricing information on produce and market supplies.

C. Procedural Background

In January 1993, the USDA received a telephone complaint

about JSG. The caller said that Mr. Goodman had been

making payments to Mr. Gentile while Mr. Gentile was

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buying tomatoes for L&P. The USDA assigned two investigators to audit JSG, and a formal PACA complaint was

eventually brought against JSG, the Gentiles, and Mr. Lomoriello. The complaint alleged that the respondents had "engaged in a scheme" whereby JSG made payments to the

Gentiles and Mr. Lomoriello "to induce [them] to purchase

tomatoes from ... JSG on behalf of [L&P and American

Banana, respectively]." Amended Complaint pp 6-7, reprinted in Joint Appendix ("J.A.") 10-11. On June 17, 1997, after

a lengthy hearing, the ALJ determined that the respondents

had committed wilful, flagrant, and repeated violations of

s 2(4). See In re JSG Trading Corp., PACA Docket Nos.

D-94-0508, D-94-0526 (June 17, 1997), at 46-47 ("ALJ Decision"), reprinted in J.A. 61-62. The ALJ found that, during

the time that Mr. Gentile was buying tomatoes from JSG on

behalf of L&P, Mr. Goodman and JSG made payments and

transferred items of value to the Gentiles. Similarly, the

ALJ found that JSG had made a series of payments to Mr.

Lomoriello, while Mr. Lomoriello was buying tomatoes from

JSG on behalf of American Banana. The ALJ identified

seven transactions that he considered illegal bribes. We

summarize them as follows:

1. The Boat

Mr. Goodman bought a boat in 1987 for approximately

$47,000. Beginning in late 1990, he allowed Mr. Gentile to

use the boat with the understanding that Mr. Gentile would

pay for the boat's upkeep and maintenance. In late 1992, Mr.

Goodman sold the boat to Mr. Gentile for $10,000. It is

undisputed that Louis Beni, L&P's secretary-treasurer and

35 percent owner, was aware of the purchase. In fact, Mr.

Gentile told Mr. Beni that he had gotten a good deal on the

boat. Two years later, after he had spent approximately

$7000 in repairs, Mr. Gentile sold the boat for approximately

$20,000.

2. The Car

In 1990, a 1990 model Mercedes 300 SEL car was leased to

Mr. Gentile for 48 months. The lease was authorized through

Dirtbag, although, as with many of Dirtbag's creditors, some

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of the lease was paid for by JSG. Mr. Goodman testified that

he gave the car to Mr. Gentile for him to drive while doing

work for Dirtbag. When the car was presented to Mr.

Gentile, Mr. Goodman placed a red ribbon on it. It is

undisputed that Mr. Gentile's superiors at L&P knew about

the car, and knew about Mr. Gentile's association with Mr.

Goodman and Dirtbag. Despite Mr. Goodman's and Mr.

Gentile's testimony as to the work Mr. Gentile did for Dirtbag, the ALJ found it "doubtful" that Mr. Gentile used the

car for Dirtbag business, concluding rather that the car was

probably a gift from Mr. Goodman to Mr. Gentile. See ALJ

Decision at 23-24, reprinted in J.A. 38-39.

3. The Watch

In July 1992, Mr. Goodman purchased a $3000 Rolex watch

and gave it to Mr. Gentile as a gift. Mr. Goodman testified

that he gave the watch to Mr. Gentile partly as a birthday

present, partly as a present to celebrate Mr. Gentile's recovery from cancer, and partly in appreciation for Mr. Gentile's

willingness to teach him about the tomato business. Mr.

Gentile wore the watch openly, and it is undisputed that Mr.

Beni knew about the gift.

4. The Stock Sale

When he was diagnosed with cancer, Mr. Gentile transferred his 75 shares of Dirtbag stock to Mrs. Gentile. In

February 1991, Mrs. Gentile entered into a written agreement to sell her 75 shares of Dirtbag to Mr. Goodman for

$80,000. The agreement provided that upon final payment, a

loan of $40,000 from Mr. Gentile to Dirtbag would be released. There was also evidence that Mr. Gentile had invested an additional $7000 in Dirtbag for a new truck. The ALJ

concluded that, because Dirtbag was an unprofitable company, Mr. Goodman had overpaid the Gentiles by at least

$33,000 ($80,000 minus the $47,000 that Mr. Gentile had

invested in Dirtbag). Neither party offered a valuation expert on this issue.

5. The Circular Checks

JSG issued 35 checks, totaling approximately $62,000, made

payable to "A. Gentile." These checks were not deposited in

a bank account controlled or owned by the Gentiles. Instead,

they were endorsed in the name of "A. Gentile" by JSG's

bookkeeper, and redeposited in a JSG account. Although the

checks were "circular," in that they ended up back in JSG's

account, the ALJ found that the checks were used in JSG's

records to indicate that Mr. Goodman was sharing his profit

with Mr. Gentile. See ALJ Decision at 30, reprinted in J.A.

45. Further, the ALJ found that sixteen of the checks were

shown in JSG's records as reducing a loan that Mr. Gentile

owed to JSG. See id.

6. The Payments to Mrs. Gentile

JSG also made several payments to Mrs. Gentile. According to Mr. Goodman and Mrs. Gentile, the payments were for

services rendered to JSG by Mrs. Gentile. Specifically, Mrs.

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Gentile testified that, at Mr. Goodman's request, she checked

tomatoes at Florida packing houses and gave reports on her

findings to Mr. Goodman. The ALJ, however, relying primarily on the fact that there was no written agreement

between Mr. Goodman and Mrs. Gentile, found the payments

to be bribes rather than compensation for services rendered.

7. The Payments to Mr. Lomoriello

From December 1992 through February 1993, a period

during which Mr. Lomoriello was responsible for buying

tomatoes on behalf of American Banana, JSG issued seven

checks to Mr. Lomoriello, totaling approximately $10,000.

According to Mr. Goodman and Mr. Lomoriello, the payments

were for various services Mr. Lomoriello rendered to JSG.

American Banana's vice-president, Demetrius Contos, testified that he was aware that Mr. Lomoriello used his own

truck during the evenings for his own business unrelated to

American Banana. The ALJ, however, found that the payments were bribes, and cited evidence in JSG's records

suggesting that Mr. Lomoriello was getting paid a certain

amount for each box of tomatoes that JSG sold to American

Banana.

After describing these seven payments, the ALJ interpreted prior agency precedent as dictating that "JSG could only

make ... payments [to the Gentiles and Mr. Lomoriello] with

its customers' [i.e., L&P's and American Banana's] permission." ALJ Decision at 18, reprinted in J.A. 33. The ALJ

concluded that "[e]ven if it received permission, JSG should

not have made more than de minimis payments to Mr.

Gentile and Mr. Lomoriello. These payments were more

than de minimis. Therefore, these payments constituted

commercial bribery, in violation of section 2(4) of the PACA."

Id. The ALJ found that the PACA violations were "wilful,

flagrant, and repeated," and ordered JSG's PACA license

revoked. Id. at 46, reprinted in J.A. 61.

JSG and the Gentiles (but not Mr. Lomoriello) appealed the

ALJ's decision to the Judicial Officer, to whom the Secretary

has delegated authority as the final deciding officer in the

agency's adjudicatory process. See 7 C.F.R. ss 1.132, 2.35

(1998). On March 2, 1998, the Judicial Officer adopted, with

minor and insignificant changes, the ALJ's factual and legal

conclusions. See In re JSG Trading Corp., PACA Docket

Nos. D-94-0508, D-94-0526 (May 2, 1998), at 8 ("Judicial

Officer Decision"), reprinted in J.A. 70. JSG filed a petition

for reconsideration with the Judicial Officer, which was denied on June 1, 1998. See In re JSG Trading Corp., PACA

Docket Nos. D-94-0508, D-94-0526 (June 1, 1998), at 25

("Reconsideration Order"), reprinted in J.A. 182. On July 30,

1998, the Judicial Officer issued a stay of the order revoking

JSG's license pending judicial review. JSG, alone, then petitioned this court for review of the Judicial Officer's final

determination.

II. Analysis

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A. Standard of Review

This court has exclusive jurisdiction to review final orders

of the USDA in disciplinary actions brought under PACA.

See 28 U.S.C. s 2342(2). We review the agency's orders

under the Administrative Procedure Act's ("APA") arbitrary

and capricious standard. That is, we will uphold the Judicial

Officer's decision unless we find it to be arbitrary, capricious,

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ported by substantial evidence. See 5 U.S.C. s 706(2)(A),

(E).

B. The Prohibition Against Commercial Bribery Under

PACA

Section 2(4) of PACA does not, by its terms, proscribe

"commercial bribery." Nevertheless, the agency has, on two

previous occasions, interpreted the provision to cover activity

that falls within the traditional definition of commercial bribery. See In re Tipco, Inc., 50 Agric. Dec. 871, 1991 WL

295153 (1991), aff'd per curiam, Tipco, Inc. v. Yeutter, 953

F.2d 639 (4th Cir. 1992) (unpublished table decision), available in 1992 WL 14586; In re Sid Goodman & Co., 49 Agric.

Dec. 1169, 1990 WL 320442 (1990), aff'd per curiam, Sid

Goodman & Co. v. United States, 945 F.2d 398 (4th Cir. 1991)

(unpublished table decision), available in 1991 WL 193489.

Tipco and Goodman involved very similar facts, as well as

some of the same parties. In each case, a wholesale produce

dealer paid the purchasing agents of a supermarket chain 25

cents per package of produce bought by the chain, in an effort

to induce the agents to buy from that dealer and not a

competitor. The dealer then raised the price of each package

by 25 cents, in order to cover the payment to the purchasing

agents. The purchasing agents' employers--the supermarket

chains--were unaware of the payments to their employees

and the surcharge that they incurred. The payment schemes

resulted in increased sales for the dealer, a kickback for the

purchasing agents, and, of course, higher prices for the

innocent supermarket chain. In each case, the agency

brought complaints against the dealers under PACA, and

eventually revoked their PACA licenses, citing flagrant and

repeated violations of s 2(4).

In Goodman, the first PACA case ever to address allegations of commercial bribery, the Judicial Officer applied the

following definition of commercial bribery:

[T]he "offer of consideration to another's employee or

agent in the expectation that the latter will, without fully

informing his principal of the gift, be sufficiently influUSCA Case #98-1342 Document #437872 Filed: 05/25/1999 Page 10 of 19
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enced by the offer to favor the offeror over other competitors."

In re Sid Goodman & Co., 49 Agric. Dec. 1169, 1184, 1990

WL 320442, at **10 (quoting 2 Rudolph Callman, The Law of

Unfair Competition Trademarks and Monopolies s 49 (3d ed.

1968)). The Judicial Officer went on to make specific findings

that the dealer made the payments with the intent to induce

the purchasing agents to buy from that dealer as opposed to

its competitors, see Goodman, 49 Agric. Dec. at 1187, 1990

WL 320442, at **12, and that the payments were made

surreptitiously, i.e., without the knowledge of the purchasing

agents' employers, see id. at 1187-88, 1990 WL 320442, at

**13.

In Tipco, the same Judicial Officer once again made specific

findings of both intent to induce, see Tipco, 50 Agric. Dec. at

896, 1991 WL 295153, at **16, and secrecy, see id. at 899,

1991 WL 295153, at **18. Although he did not repeat the

definition of commercial bribery that he had used in Goodman, the Judicial Officer in Tipco made it clear that he was

relying on the standard he had employed in the previous case.

See, e.g., id. at 889, 1991 WL 295153, at **11 ("[T]he evidence

of record is certain that licensee Tipco made surreptitious

payments to its customer's employee to induce the employee

to buy, or continue to buy, its produce, certainly, in derogation of its competitors. Under the precepts of the Goodman

case, this is enough, in itself, for me to find that respondent

Tipco deserves the same sanction for the same violation as

found in the Goodman proceeding."). The Fourth Circuit, in

unpublished dispositions, upheld the agency's interpretation

of s 2(4) in both cases. See Tipco, Inc. v. Yeutter, 953 F.2d

639 (4th Cir. 1992) (unpublished table decision), available in

1992 WL 14586; Sid Goodman & Co v. United States, 945

F.2d 398 (4th Cir. 1991) (unpublished table decision), available in 1991 WL 193489.

It is clear that the test for commercial bribery employed by

the agency in Goodman and Tipco requires a finding of both

intent to induce and secrecy. These requirements are not

surprising, given that commercial bribery statutes typically

contain at least these two elements. See, e.g., N.Y. Penal

Law ss 180.00, 180.03 (McKinney 1999) ("A person is guilty of

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commercial bribing ... when he confers, or offers or agrees

to confer, any benefit upon any employee, agent or fiduciary

without the consent of the latter's employer or principal, with

intent to influence his conduct in relation to his employer's or

principal's affairs."); 720 Ill. Comp. Stat. Ann. 5/29A-1 (West

1998) ("A person commits commercial bribery when he confers, or offers or agrees to confer, any benefit upon any

employee, agent or fiduciary without the consent of the

latter's employer or principal, with intent to influence his

conduct in relation to his employer's or principal's affairs.");

see also 2 Rudolph Callman, The Law of Unfair Competition

Trademarks and Monopolies s 12.01, at 1 n.0.50; s 12.01, at

8-9 (4th ed. 1996 & Supp. 1999); Black's Law Dictionary 270

(6th ed. 1990) (defining commercial bribery as "[a] form of

corrupt and unfair trade practice in which an employee

accepts a gratuity to act against the best interests of his

employer").

We do not disagree with the Fourth Circuit that the broad

and ambiguous language of s 2(4) can be read to proscribe

activity that falls within one of the traditional definitions of

commercial bribery described above. Indeed, JSG concedes

that commercial bribery is illegal under PACA. See Reply

Brief of Petitioner at 4. The issue presented here is whether

the agency applied the same commercial bribery standard in

the instant case that it applied in both Goodman and Tipco,

and, if not, whether it adequately explained its reasons for

departing from prior agency precedent.

C. The Commercial Bribery Standard Applied in This Case

JSG argues that the agency in the instant case departed

from the precedent established in Goodman and Tipco by

applying a per se test for commercial bribery. The agency

concedes that the Judicial Officer applied a per se test, which

deems illegal any payment above a de minimis level from a

produce dealer to a purchasing agent, regardless of whether

there is any secrecy or intent to induce. Indeed, agency

counsel stated at oral argument that "[t]here is no way of

characterizing [the test employed by the Judicial Officer] any

other way." Tr. of Oral Argument at 18. Agency counsel

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also conceded that, because he was employing a per se test,

the Judicial Officer did not make explicit findings with respect to secrecy or intent to induce. See id. at 18, 19, 36. In

fact, the Judicial Officer specifically found that Mr. Gentile's

employer was aware of at least one of Mr. Goodman's gifts.

See, e.g., Judicial Officer Decision at 33, reprinted in J.A. 95

(finding that Mr. Beni was aware that Mr. Goodman had

given Mr. Gentile a good deal on the boat). The agency

argues, however, that the Judicial Officer's use of the per se

test was permissible under prior agency precedent. We

disagree. It is clear here that the Judicial Officer adhered to

a new definition of commercial bribery that finds no support

in the case law; it is also clear that he offered no justification

whatsoever either for his re-definition of commercial bribery

or for the necessity of a per se test in this or any other case.

The Judicial Officer did purport to follow Goodman and

Tipco. See, e.g., Judicial Officer Decision at 90, reprinted in

J.A. 155 ("[T]he legal standard for bribery, in violation of

section 2(4) of the PACA ... is established by Goodman and

Tipco...."). Nevertheless, the Judicial Officer never once,

in his entire 96-page opinion, cited the actual definition of

commercial bribery that was quoted in Goodman and employed by the agency in both Goodman and Tipco. Instead,

the Judicial Officer cited the following dicta from the Judicial

Officer's opinion in Tipco:

Included within [the obligations of a PACA licensee] is

the positive duty to refrain from corrupting an employee

of a person with whom [the licensee] is dealing, e.g., each

PACA licensee is obligated to avoid offering a payment

to a customer's employee to encourage the employee to

purchase produce from it on behalf of his employer. On

the other hand, if the employee seeks a payment from

the licensee, the licensee is affirmatively obligated to

report that request to its customer, could only make

payments with the customer's permission, and, even

then, would risk violating PACA with anything more

than a de minimis payment (e.g., more than a pen,

calendar or lighter).

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Judicial Officer Decision at 28, reprinted in J.A. 90 (quoting

Tipco, 50 Agric. Dec. at 882-83, 1991 WL 295153, at **9). On

the basis of that dicta--which, at most, establishes a risk of a

PACA violation--the Judicial Officer reached the following

conclusion with respect to the record in the instant case:

As in Goodman and Tipco, JSG was obligated to refrain

from making payments to Mr. Gentile and Mr. Lomoriello since such payments would encourage Mr. Gentile and

Mr. Lomoriello to purchase tomatoes from JSG. JSG

could only make such payments with its customers' permission. Even if it received permission, JSG should not

have made more than de minimis payments to Mr.

Gentile and Mr. Lomoriello. The payments [made by

JSG to Messrs. Gentile and Lomoriello] were more than

de minimis. Therefore, these payments constitute commercial bribery, in violation of section 2(4) of the PACA.

Id. at 28-29, reprinted in J.A. 90-91 (brackets in original).

This conclusion blatantly ignores the legal test of commercial

bribery established and applied in Goodman and Tipco, applying instead a per se rule that was never even contemplated

in the prior cases.

Under the Judicial Officer's per se test, produce dealers are

guilty of commercial bribery when they transfer items of

value to purchasing agents, even if the agents' employers are

fully aware of the gifts, and even if the dealers have no intent

to induce the agents to buy from them. For example, Mr.

Goodman claimed that he gave the Rolex watch to Mr.

Gentile essentially as a gesture of friendship, and to celebrate

Mr. Gentile's recovery from cancer. The Judicial Officer held

that "[a]lthough Mr. Goodman said he was motivated by his

friendship with Mr. Gentile, the [act of] bestowing such an

expensive present upon Mr. Gentile at the time that JSG was

selling large quantities of tomatoes to L&P ... was unlawful." Id. at 35, reprinted in J.A. 97 (brackets in original); see

also Reconsideration Order at 17, reprinted in J.A. 174 ("Mr.

Goodman's alleged personal relationship with Mr. Gentile

does not obviate the requirement that JSG refrain from

making gifts of substantial value to Mr. Gentile[,] who was

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working for one of JSG's customers."). Under this theory, as

agency counsel conceded at oral argument, see Tr. of Oral

Argument at 27-31, it would have been illegal for Mr. Goodman to give the owner of L&P a Rolex watch, or even for Mr.

Goodman to take the owner of L&P out to lunch. These are

far-fetched notions of commercial bribery, at least under

established law. We have been unable to find any precedent,

in any context, that defines commercial bribery as here

suggested, and agency counsel cited none.

Putting aside for the moment the question whether the

Judicial Officer adequately justified his creation of this rather

novel theory of commercial bribery, it is quite clear that this

per se test deviates dramatically from the standard test for

commercial bribery that was actually employed in Goodman

and Tipco. For example, under the test cited in Goodman,

the gift of the watch would not have been illegal unless there

had been specific findings that Mr. Gentile's employer was

not aware of the gift, and that Mr. Goodman intended to

induce Mr. Gentile to purchase from JSG. Likewise, Mr.

Goodman would hardly be guilty of commercial bribery under

the traditional definition if he had taken the owner of L&P

out to lunch, even if the purpose of the lunch was for Mr.

Goodman to extoll the virtues of his product.

Although the agency was not strictly bound to follow the

test for commercial bribery applied in prior cases, it was

obligated to articulate a principled rationale for departing

from that test. See Gilbert v. NLRB, 56 F.3d 1438, 1445

(D.C. Cir. 1995) ("It is, of course, elementary that an agency

must conform to its prior decisions or explain the reason for

its departure from such precedent."); Greater Boston Television Corp. v. FCC, 444 F.2d 841, 852 (D.C. Cir. 1970) ("[A]n

agency changing its course must supply a reasoned analysis

indicating that prior policies and standards are being deliberately changed, not casually ignored, and if an agency glosses

over or swerves from prior precedents without discussion it

may cross the line from the tolerably terse to the intolerably

mute.") (footnote omitted). We find that the agency manifestly failed to explain its abrupt departure from prior preceUSCA Case #98-1342 Document #437872 Filed: 05/25/1999 Page 15 of 19
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dent. We therefore are constrained to remand this case to the

agency.

The agency may be able to provide a justification for

applying a different and lesser standard for commercial bribery under s 2(4) than that cited in Goodman. Given the

broad language of s 2(4), the agency is not necessarily bound

by traditional statutory definitions of commercial bribery.

Nonetheless, some justification for a lesser standard is necessary, for there is certainly no immediately apparent, or

intuitive, rationale for a per se rule that does not require a

finding of secrecy or intent to induce. Indeed, traditionally it

is precisely the secrecy and intent to induce elements that are

thought to transform otherwise innocent gifts into pernicious

bribes that destroy marketplace competition. See 2 Rudolph

Callman, The Law of Unfair Competition Trademarks and

Monopolies s 12.01, at 1 n.0.50 (4th ed. 1996 & Supp. 1999)

("When the fact that the seller is paying a commission to the

buyer's purchasing agent is revealed to the buyer, there is no

commercial bribery."); id. s 12.01, at 8-9 ("The consideration

paid by the briber may involve such pecuniary benefits as

cash payments, commissions and loans, or such nonpecuniary

pleasures as dinner and entertainment (e.g., theatre tickets),

and trips. In any case, the true test is the intent or purpose

of the offeror: Is the consideration given to influence the

agent and cause him to subordinate his bargaining function

and judgment?") (footnote omitted); Franklin A. Gevurtz,

Commercial Bribery and the Sherman Act: The Case for Per

Se Illegality, 42 U. Miami L. Rev. 365, 370-71 (1987) ("Businesses may (and usually do) provide gratuities, entertainment, campaign contributions, and the like in the hope of

disposing the recipient favorably toward them. There must

be more than this, however, to constitute a bribe. An agreement must exist between the payor and the recipient that

there will be a quid pro quo."). Even the PACA official who

testified on behalf of the agency at the hearing conceded that

a gift exchanged between old friends who happened to be in a

seller-buyer relationship was unlikely to run afoul of PACA.

See J.A. 249-50 (testimony of Bruce Summers, Senior Market

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Specialist in the Trade Practices Section of the USDA's

PACA Branch).

Even assuming that Mr. Goodman's gifts to Mr. Gentile

were made not out of pure friendship, but rather in an effort

to curry favor with Mr. Gentile, it is not immediately obvious

how the marketplace is disturbed--or how Mr. Goodman is

violating any implied duty under PACA--if Mr. Gentile's

employer is aware of the gifts, and there is no specific quid

pro quo agreement between Mr. Goodman and Mr. Gentile.

Cf. United States v. Sun-Diamond Growers of California,

119 S. Ct. 1402, 1406 (1999) (explaining that the "intent to

influence" element of the federal bribery of public officials

statute, 18 U.S.C. s 201(b)(1), (2), means that "for bribery

there must be a quid pro quo--a specific intent to give or

receive something of value in exchange for an official act").

In other words, without a finding of secrecy and intent to

induce, there appears to be nothing to distinguish an illegal

bribe from a simple promotional gift. Cf. id. at 1407 (criticizing as "peculiar" a reading of the federal gratuity statute, 18

U.S.C. s 201(c)(1)(A), (B), that would "criminalize, for example, token gifts to the President ... such as the replica

jerseys given by championship sports teams each year during

ceremonial White House visits [or] ... a high school principal's gift of a school baseball cap to the Secretary of Education ... on the occasion of the latter's visit to the school")

(citation omitted). At oral argument, agency counsel acknowledged that it is, of course, not illegal for a seller to

reduce his or her prices in an effort to induce purchases. But

agency counsel admitted that, under the agency's per se

standard, it would be illegal for the seller, rather than

lowering prices, to instead take the owner of a purchasing

entity out to dinner in an effort to promote his or her

product. See Tr. of Oral Argument at 29, 31. There is no

basis in the record or in the explanations offered by the

agency for treating the latter transaction as illegal if the

former is legal.

Indeed, Congress appeared to recognize the legality of

promotional efforts when it passed the 1995 amendment to

PACA, which allows the "good faith ... payment ... of

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collateral fees and expenses," which are defined as "any

promotional allowances, rebates, service or materials fees

paid or provided, directly or indirectly, in connection with the

distribution or marketing of any perishable agricultural commodity." 7 U.S.C. ss 499a(b)(13), 499b(4). Several of the

gifts given to Mr. Gentile by Mr. Goodman arguably could be

considered "promotional allowances" made in good faith (i.e.,

not in secret), and in connection with the marketing of JSG's

product. The Judicial Officer summarily dismissed this suggestion, asserting in a conclusory manner that the payments

were not promotional devices. See Judicial Officer Decision

at 76, reprinted in J.A. 138. But no reasoning is offered to

support this conclusion. Agency counsel suggested at oral

argument that the amendment was intended only to cover

trivial promotional devices, such as sales banners provided by

wholesale dealers to retail outlets. See Tr. of Oral Argument

at 33. Counsel was unable, however, to cite to any legislative

history to support that interpretation, and the agency has

never proffered it in any previous adjudication. Such a

limited interpretation of the 1995 amendment may be entitled

to deference under Chevron, but the agency has yet to

advance a coherent theory to support it.

On remand, the agency must explain its justification, if it

has one, for employing a per se test for commercial bribery,

and it must do so in conjunction with the 1995 amendment to

PACA. The agency is free, of course, to abandon the per se

approach, and apply the traditional commercial bribery test

employed in Goodman and Tipco. In any event, the agency

must make factual findings that are precisely connected to

the standard employed. Although the Judicial Officer alluded

to record evidence that might support findings of both secrecy and intent to induce--particularly with respect to the

payments to Mr. Lomoriello, see, e.g., Judicial Officer Decision at 54-61, reprinted in J.A. 116-23--even agency counsel

concedes that the Judicial Officer did not follow a traditional

commercial bribery test and made no explicit findings that

were tied to such a test.

This court, of course, cannot sift through the record evidence to find support for the result reached by the agency,

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see Motor Vehicle Mfrs. Ass'n v. State Farm Mut. Auto. Ins.

Co., 463 U.S. 29, 50 (1983) ("It is well established that an

agency's action must be upheld, if at all, on the basis articulated by the agency itself."), nor can we affirm an agency's

final order on the assumption that the agency might reach the

same result upon remand, see FEC v. Akins, 118 S. Ct. 1777,

1786 (1998) ("If a reviewing court agrees that the agency

misinterpreted the law, it will set aside the agency's action

and remand the case--even though the agency (like a new

jury after a mistrial) might later, in the exercise of its lawful

discretion, reach the same result for a different reason.").

Accordingly, we offer no view on the appropriate disposition

of this case; the matters at issue here must be addressed by

the agency in the first instance on remand of this case.

Appropriate findings and conclusions by the agency may be

made on the existing record or on a supplemented version of

the existing record, as is deemed appropriate.

III. Conclusion

For the reasons stated above, we grant the petition for

review and remand this case for further proceedings consistent with this opinion.

So ordered.

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