Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-09-01270/USCOURTS-caDC-09-01270-1/pdf.json

Parties Involved:
Steven C. Finberg
Petitioner
Cheryl A. Taylor
Petitioner
United States Department of Agriculture
Respondent
United States of America
Respondent

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 20, 2010 Decided January 7, 2011

 Resubmitted March 2, 2011

No. 09-1270

CHERYL A. TAYLOR AND STEVEN C. FINBERG,

PETITIONERS

v.

UNITED STATES DEPARTMENT OF AGRICULTURE AND UNITED

STATES OF AMERICA,

RESPONDENTS

On Petition for Review of Orders 

of the Department of Agriculture

Stephen P. McCarron argued the cause and filed the briefs

for petitioners.

Andrew R. Varcoe, Attorney, U.S. Department of

Agriculture, argued the cause for respondents. With him on the

brief were James Michael Kelly, Associate General Counsel, and

Brian J. Sonfield, Assistant General Counsel.

Before: BROWN, Circuit Judge, and EDWARDS and

RANDOLPH, Senior Circuit Judges.

Opinion for the Court filed by Senior Circuit Judge

EDWARDS.

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Dissenting opinion filed by Circuit Judge BROWN.

EDWARDS, Senior Circuit Judge: The Perishable

Agricultural Commodities Act (“PACA”) requires persons who

buy or sell specified 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. §§

499a(b)(5)-(7), 499c(a), 499d(a), and makes it unlawful for a

licensee to engage in certain types of unfair conduct, see id. §

499b. The statute requires regulated merchants, dealers, and

brokers to “truly and correctly . . . account and 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). It also provides that PACA licensees may

not employ, for at least one year, any person found “responsibly

connected” to any person whose license has been revoked or

suspended, or who has been found to have committed any

flagrant or repeated violation of 7 U.S.C. § 499b. See

7 U.S.C. § 499h(b).

In January 2007, an Administrative Law Judge (“ALJ”) at

the Department of Agriculture (“Department”) found that Fresh

America, a national produce wholesaler licensed to do business

under PACA, had willfully, repeatedly, and flagrantly violated

Section 2(4) of PACA, 7 U.S.C. § 499b(4), by failing to

promptly make full payment to produce sellers between

February 2002 and February 2003. In re Fresh Am. Corp., 66

Agric. Dec. 953, 959 (U.S.D.A. 2007). Fresh America did not

contest this decision. While the case against Fresh America was

pending, the Chief of the PACA Branch of the Fruit and

Vegetable Division of the Agricultural Marketing Service

determined that the petitioners in this case, Cheryl Taylor and

Steven Finberg, who were officers of Fresh America, had been

responsibly connected to Fresh America during the violations

period and were therefore subject to the statute’s employment

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restrictions. Taylor and Finberg sought administrative review of

this determination. 

In March 2009, following a two-day hearing, an ALJ issued

a decision affirming the PACA Branch Chief’s determinations

and concluding that both Taylor and Finberg had been

responsibly connected to Fresh America during the violations

period. In September 2009, a Judicial Officer rejected the

petitioners’ administrative appeals. In re Taylor, PACA App.

Docket Nos. 06-0008, 06-0009 (U.S.D.A. Sept. 24, 2009)

(“Judicial Officer Decision”), reprinted in 1 Joint Appendix

(“J.A.”) 7. In holding against the petitioners, the Judicial

Officer found that the petitioners were not merely nominal

officers of Fresh America. The Judicial Officer also found that

Fresh America was not the alter ego of its chairman of the

board, Arthur Hollingsworth. Petitioners now seek review in

this court.

We agree with petitioners that the Judicial Officer erred in

rejecting their claims that they were merely nominal officers of

Fresh America. Under 7 U.S.C. § 499a(b)(9), an “officer” of the

offending company is not considered to be “responsibly

connected” to a violating licensee if that person was not actively

involved in the PACA violation and was “powerless to curb it,”

Quinn v. Butz, 510 F.2d 743, 755 (D.C. Cir. 1975). See also Bell

v. Dep’t of Agric., 39 F.3d 1199, 1202 (D.C. Cir. 1994). The

Judicial Officer in this case “paid little heed to circuit law on

nominal officers,” id., for his decision is devoid of any analysis

of the actual power exercised by Taylor and Finberg at Fresh

America. The disputed decision is thus fatally flawed for want

of reasoned decisionmaking. Accordingly, the petition for

review is granted in part, and the case is remanded to the

Department for further proceedings consistent with this decision.

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I. BACKGROUND

A. Statutory Background

PACA prohibits certain conduct by merchants, dealers, or

brokers of perishable agricultural commodities in order to “help

instill confidence in parties dealing with each other on short

notice, across state lines and at long distances.” Kleiman &

Hochberg, Inc. v. U.S. Dep’t of Agric., 497 F.3d 681, 685 (D.C.

Cir. 2007) (quoting Veg-Mix, Inc. v. U.S. Dep’t of Agric., 832

F.2d 601, 604 (D.C. Cir. 1987)). PACA is “admittedly and

intentionally a tough law.” Kleiman & Hochberg, 497 F.3d at

693 (quoting S.REP.NO.84-2507, at 3 (1956), reprinted in 1956

U.S.C.C.A.N. 3699, 3701 (internal quotation marks omitted)).

As noted above, the statute forbids, inter alia, any merchant,

dealer, or broker of perishable agricultural commodities from

“fail[ing] or refus[ing] truly and correctly to account and 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). In addition, PACA prevents licensees from

employing, for a minimum of one year, “any person who is or

has been responsibly connected” to a flagrant or repeated PACA

violator. 7 U.S.C. § 499h(b).

Under this statutory scheme, 

[a]n officer, director, or holder of more than ten percent of

the stock of a corporation licensed under the PACA is

presumed . . . to be ‘responsibly connected’ to that

corporation. 7 U.S.C. § 499a(b)(9). For many years the

circuits were divided over whether the presumption of §

499a(b)(9) is irrebuttable . . . or, as we held, rebuttable. See

Quinn v. Butz, 510 F.2d at 757.

Hart v. Dep’t of Agric., 112 F.3d 1228, 1230 (D.C. Cir. 1997).

Under the law of this circuit, a person could rebut the

presumption that he or she was “responsibly connected” to a

PACA violator in either of two ways:

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The first involve[d] cases in which the violator, although

formally a corporation, [was] essentially an alter ego of its

owners, so dominated as to negate its separate personality.

. . . 

The second way of rebutting the presumption [was] for the

petitioner to prove that at the time of the violations he was

only a nominal officer, director, or shareholder. This he

could establish by proving that he lacked an actual,

significant nexus with the violating company. Where

responsibility was not based on the individual’s personal

fault it would have to be based at least on his failure to

counteract or obviate the fault of others.

Bell, 39 F.3d at 1201 (emphasis in original) (citations and

internal quotation marks omitted).

“In 1995 the Congress amended § 499a(b)(9) to make it

clear that the presumption is rebuttable.” Hart, 112 F.3d at

1230. The statute now provides:

The term “responsibly connected” means affiliated or

connected with a commission merchant, dealer, or broker as

(A) partner in a partnership, or (B) officer, director, or

holder of more than 10 per centum of the outstanding stock

of a corporation or association. A person shall not be

deemed to be responsibly connected if the person

demonstrates by a preponderance of the evidence that the

person was not actively involved in the activities resulting

in a violation of this chapter and that the person either was

only nominally a partner, officer, director, or shareholder of

a violating licensee or entity subject to license or was not an

owner of a violating licensee or entity subject to license

which was the alter ego of its owners. 

7 U.S.C. § 499a(b)(9). Thus, under the current version of the

statute, it is presumed that an officer of a corporation is

responsibly connected to the violating company unless the

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officer can show that he or she (1) was not actively involved in

the PACA violations, and (2) was either a nominal officer of the

violating PACA licensee or a non-owner of a licensee that was

the alter ego of its owners.

B. Factual Background

Cheryl Taylor joined Fresh America as a consultant in April

2001. Her primary tasks were to prepare and review Fresh

America’s filings for the Securities and Exchange Commission

(“SEC”), confer with company accountants, and assist the

company in its efforts to secure refinancing of existing debts.

Shortly after signing a consulting agreement with Fresh

America, Taylor was given the titles of executive vice president,

chief financial officer, and secretary of the company, albeit

without any additional compensation. According to Taylor, she

was assigned these titles because the company “needed [her] to

sign documents”; however, she stated that she did not do “any

of the normal things that a CFO” does. Hearing Tr. (Jan. 29,

2008) at 362, 364, reprinted in 1 J.A. 142, 144.

In 1989, when he was a college student, Steven Finberg first

started working with Gourmet Packing, a predecessor company

to Fresh America. In 1999, after several promotions, Finberg

was given the position of vice president of sales and marketing

for Fresh America. His job responsibilities included managing

Fresh America’s national accounts and developing a marketing

message on behalf of the company. In 2001, Finberg was given

the title of executive vice president, although his job

responsibilities remained the same. Hearing Tr. (Jan. 30, 2008)

at 791-92, reprinted in 1 J.A. 277-78. In explaining his job,

Finberg testified as follows: he never assumed any authority

over the purchase of produce; he never was involved in a

payment for produce; and he did not recall ever signing a check

on behalf of the company. Id. at 799-800.

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During the period when Fresh America committed the

PACA violations that gave rise to this case, Arthur

Hollingsworth, the co-founder and partner of the venture-capital

and private-equity fund North Texas Opportunity Fund LP

(“NTOF”), was chairman of the board. In 2001, NTOF invested

$5 million in Fresh America and, as part of a financial

restructuring of Fresh America, appointed four of the five

members of the board. The record indicates that the company

was largely run by the board. As one board member testified,

under NTOF’s leadership, “board meetings became the

management of the company.” Hearing Tr. (Jan. 29, 2008) at

146, 1 J.A. 96. And there is evidence that the board, not

company officers or managers, made all decisions governing the

company’s bills, capital expenditures, and personnel. Id. at 146-

49, 1 J.A. 96-99. 

Both Taylor and Finberg attended most of the company’s

board meetings, but they were not members of the board. And

even though they carried “officer” titles at Fresh America, there

is evidence that neither Taylor nor Finberg had any measurable

power or authority in board deliberations. For example, when

the board addressed problems relating to the payment of bills,

Taylor and Finberg stressed the need for the company to pay its

bills on time. Id. at 91, 1 J.A. 84. However, the board rejected

the advice offered by Taylor and Finberg. Instead, the board

followed a policy of having Fresh America pay its bills when the

company had the capacity to do so. Id. at 92, 1 J.A. 85. Both

Taylor and Finberg remained with Fresh America until at least

January 2003, when the company ceased operations.

C. The Proceedings Before the Agency

In 2005, the Department filed a complaint against Fresh

America, alleging that the company had committed PACA

violations between February 2002 and February 2003 by failing

to promptly pay a total of more than $1.2 million to 82 sellers of

perishable agricultural commodities. The company defaulted on

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these charges. In re Fresh Am. Corp., 66 Agric. Dec. 953

(U.S.D.A. 2007). In the summer of 2006, the Chief of the

PACA Branch of the Fruit and Vegetable Programs Division of

the Agricultural Marketing Service made an initial

determination that, pursuant to 7 U.S.C. § 499a(b)(9), Taylor

and Finberg were responsibly connected to Fresh America. In

re Taylor, PACA App. Docket Nos. 06-0008, 06-0009

(U.S.D.A. Mar. 19, 2009) ¶¶ 12-13, reprinted in 1 J.A. 31.

Taylor and Finberg petitioned the agency for review of these

determinations, and the agency joined the two cases for a

hearing before an ALJ.

After a two-day hearing, the ALJ found that Taylor, but not

Finberg, was actively involved in the PACA violations.

However, the ALJ found that both Taylor and Finberg were

responsibly connected to Fresh America within the meaning of

PACA. The ALJ concluded that the evidence presented by

Taylor and Finberg did not demonstrate, as they claimed, that

they were merely nominal officers of Fresh America. Id. ¶¶ 52-

57, 82-85, 1 J.A. 46-47, 57-59. In reaching this conclusion, the

ALJ found that Taylor was “vital to Fresh America Corp. and an

important and influential officer,” id. ¶ 56, 1 J.A. 47, and that

Finberg “was a valuable member of the team that tried to keep

Fresh America Corp. in business,” id. ¶ 82, 1 J.A. 57. 

Petitioners appealed within the agency, and the ALJ’s decision

was reviewed by a Judicial Officer. Although the Judicial

Officer did not adopt the ALJ’s reasoning, he did affirm the

judgments against Taylor and Finberg.

The Judicial Officer relied on three grounds to support his

finding that Taylor and Finberg were responsibly connected to

Fresh America. First, the Judicial Officer pointed to the

petitioners’ backgrounds, noting that “each had the experience,

training, and education to serve in their positions as officers.”

Judicial Officer Decision at 13, 1 J.A. 19. Second, he noted that

the annual reports and proxy statements filed with the SEC listed

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Taylor and Finberg as officers. Id. at 11-14, 1 J.A. 17-20. He

apparently thought this to be decisive, stating: “[T]he fact that

each was identified in the SEC filings as an officer makes it

difficult for me to conclude that they were only nominal

officers.” Id. at 14, 1 J.A. 20. Finally, the Judicial Officer relied

on the fact that “Ms. Taylor and Mr. Finberg knew of Fresh

America Corp.’s financial difficulties.” Id.

The Judicial Officer also expressed the view that, although

Taylor and Finberg told the board of directors about the payment

provisions in PACA, their “only option to avoid a responsibly

connected determination was to resign as officers of Fresh

America Corp. prior to Fresh America Corp.’s PACA

violations.” Id. Because the Judicial Officer found that Taylor

was not a nominal officer of Fresh America, he chose not to

address her separate argument that the ALJ erred in finding her

actively involved in the company’s PACA violations. Id. at 14-

15, 1 J.A. 20-21.

Finally, the Judicial Officer rejected the petitioners’

argument that Fresh America was the alter ego of

Hollingsworth:

The record makes clear that, while Mr. Hollingsworth was

a dominant chairman, the decisions attributed to Mr.

Hollingsworth were made by the board of directors. The

concept of alter ego goes well beyond the evidence

presented in the instant proceeding. Fresh America Corp.

had regular board meetings at which non-board members

were present and reported to the board. The board of

directors, with Mr. Hollingsworth as chairman, ran Fresh

America Corp. While Mr. Hollingsworth and the board of

directors made decisions usually reserved for individuals at

a lower level of authority, it is understandable, considering

Fresh America Corp.’s financial position and the recent

investment made by [NTOF], which was managed by Mr.

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Hollingsworth, that such decisions came before the board

of directors.

Id. at 15-16 (accompanying parenthetical omitted), 1 J.A. 21-22.

In their petition for review, Taylor and Finberg contest the

Judicial Officer’s findings that they were not merely nominal

officers of Fresh America and that Fresh America was not the

alter ego of Hollingsworth. 

II. ANALYSIS

A. Standard of Review

“[W]e must uphold the Judicial Officer’s decision unless we

find it to be arbitrary, capricious, an abuse of discretion, not in

accordance with law, or unsupported by substantial evidence.”

Kleiman & Hochberg, 497 F.3d at 686 (quoting Kirby Produce

Co. v. U.S. Dep’t of Agric., 256 F.3d 830, 833 (D.C. Cir. 2001))

(internal quotation marks omitted). “[A]n agency rule would be

arbitrary and capricious if the agency . . . entirely failed to

consider an important aspect of the problem [or] offered an

explanation for its decision that runs counter to the evidence

before the agency.” Motor Vehicle Mfrs. Ass’n of the U.S., Inc.

v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983); see

also Allentown Mack Sales & Serv., Inc. v. NLRB, 522 U.S. 359,

374 (1998) (“The Administrative Procedure Act . . . establishes

a scheme of ‘reasoned decisionmaking.’ Not only must an

agency’s decreed result be within the scope of its lawful

authority, but the process by which it reaches that result must be

logical and rational.” (quoting State Farm, 463 U.S. at 52)). In

this case, the petitioners argue that the Judicial Officer’s

decision defies this requirement of reasoned decisionmaking,

because it pays no heed to the controlling law on nominal

officers. 

Although not stated explicitly, Taylor and Finberg also

argue that the Judicial Officer’s decision should be set aside for

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want of substantial evidence, which governs “on-the-record

agency factfinding.” Allentown Mack, 522 U.S. at 377. Under

section 706(2)(E) of the Administrative Procedure Act, 5 U.S.C.

§ 706(2)(E), substantial evidence review requires a court to

consider the whole record upon which an agency’s factual

findings are based. See Universal Camera Corp. v. NLRB, 340

U.S. 474, 488 (1951). 

In describing the whole record review of § 706(2)(E), the

Court acknowledged that the requirement “does not furnish

a calculus of value by which a reviewing court can assess

the evidence.” [Universal Camera, 340 U.S. at 488.] It

also noted that substantial evidence review does not negate

the “respect” with which courts are to review decisions

based on agency expertise. Id. Nor, the Court explained,

does whole record review mean that a court can displace an

agency’s “choice between two fairly conflicting views,”

even though the reviewing court “would justifiably have

made a different choice had the matter been before it de

novo.” Id. Rather, a reviewing court must “ask whether a

reasonable mind might accept a particular evidentiary

record as adequate to support a conclusion.” Dickinson v.

Zurko, 527 U.S. 150, 162 (1999). Or, put differently, a

court must decide whether, on the record under review, “it

would have been possible for a reasonable jury to reach the

[agency’s] conclusion.” Allentown Mack Sales & Serv.,

Inc. v. NLRB, 522 U.S. 359, 366-67 (1998).

HARRY T. EDWARDS & LINDA A. ELLIOTT, FEDERAL

STANDARDS OF REVIEW–REVIEW OF DISTRICT COURT

DECISIONS AND AGENCY ACTIONS 176 (2007) (second brackets

in original).

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B. The Judicial Officer’s Decision that Petitioners Were

Not Nominal Officers

PACA defines a “responsibly connected” person as one who

is “affiliated or connected with a [licensee] as . . . [an] officer,

director, or holder of more than 10 per centum of the

outstanding stock.” 7 U.S.C. § 499a(b)(9). There is no dispute

that Taylor and Finberg were officers and thus come within this

definition. As noted above, however, PACA also provides that:

A person shall not be deemed to be responsibly connected

if the person demonstrates by a preponderance of the

evidence that the person was not actively involved in the

activities resulting in a violation of [PACA] and that the

person either was only nominally . . . [an] officer, director,

or shareholder of a violating licensee. 

Id. The question here is whether the petitioners met their burden

of demonstrating by a preponderance of the evidence that they

were not actively involved in the PACA violations and that they

were merely nominal officers of Fresh America.

Before Congress amended PACA in 1995 to include an

express exception for nominal officers, this circuit had for a

number of years applied an “actual, significant nexus” test to

determine whether a person was responsibly connected to an

offending PACA licensee.

Prior to the amendment of § 499a(b)(9) we held that an

officer, director, or ten percent shareholder could rebut the

presumption against her by showing either that the

corporate violator is nothing more than the alter ego of its

owner or that she was only a nominal officer, director, or

shareholder of that corporation. Bell v. Department of

Agriculture, 39 F.3d 1199, 1201 (D.C. Cir. 1994). In order

to prove that the corporation is the alter ego of its owner

one must show that the owner so dominated the corporation

as “to negate its separate personality.” Quinn, 510 F.2d at

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758. In order to prove that one was only a nominal officer

or director, one must establish that one lacked any “actual,

significant nexus with the violating company” and,

therefore, neither “knew [n]or should have known of the

[c]ompany’s misdeeds.” Minotto v. USDA, 711 F.2d 406,

408-409 (D.C. Cir. 1983). See also Quinn, 510 F.2d at 756,

n.84 (observing that situation in which “the affiliation is

purely nominal and the so-called officer had no powers at

all” is “radically different” from one in which a genuine

officer simply “does not use the powers of his office.”)

Hart, 112 F.3d at 1230-31 (brackets in original); see also Quinn,

510 F.2d at 755 (“[T]he Perishable Agricultural Commodities

Act was designed to strike at persons in authority who

acquiesced in wrongdoing as well as the wrongdoers

themselves.”); id. (persons who carry the title of officer are not

subject to the statute’s employment restrictions if they

demonstrate that they were “powerless to curb” the

wrongdoing). The law of this circuit thus laid the foundation for

the nominal officer exception enacted by Congress in 1995.

In this case, the Judicial Officer cited Hart and purported to

apply the “actual, significant nexus” test in determining that

Taylor and Finberg were responsibly connected to Fresh

America. Judicial Officer Decision at 9, 1 J.A. 15. The

petitioners do not take issue with the applicability of the “actual,

significant nexus” test. Rather, they argue that the Judicial

Officer reached the wrong conclusion because he misapplied the

legal standard. We agree.

 Under the “actual, significant nexus” test, “the crucial

inquiry is whether an individual has an actual, significant nexus

with the violating company, rather than whether the individual

has exercised real authority.” Veg-Mix, Inc. v. U.S. Dep’t of

Agric., 832 F.2d 601, 611 (D.C. Cir. 1987) (internal quotation

marks omitted). Although we have consistently applied the

‘actual, significant nexus’ test, our cases make clear that what is

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really important is whether the person who holds the title of an

officer had actual and significant power and authority to direct

and affect company operations. For example, in Kleiman &

Hochberg, the court found that the petitioner “did not prove that

he qualified for the ‘nominal’ exception, nor could he do so[,

because he] . . . concede[d that] he owned 31.6 percent of the

corporation’s outstanding stock, was the company’s President,

and was ‘actively engaged in the day-to-day operations,

management, and control of [the company].’” 497 F.3d at 692

(emphasis in original). The court also tellingly rejected the

suggestion that a person cannot be responsibly connected to a

violating licensee unless he either knew or should have known

about the violations and then failed to take action to counteract

the actions of others constituting the violations. On this point,

the court noted that “neither the statutory definition of

‘responsibly connected’ nor the statutory ‘nominal’ and ‘alter

ego’ exceptions suggest such a knowledge requirement.” Id.

(accompanying parenthetical omitted). 

This case stands in stark contrast to Kleiman & Hochberg.

The Judicial Officer’s decision gives lip service to the “actual,

significant nexus” test, but it fails to apply the test in any

coherent fashion. Under the applicable legal standard, the

agency must carefully assess a person’s actual power and

authority at the violating company – not merely the person’s

title, background, and knowledge of PACA violations – in order

to determine whether the person was responsibly connected to

an offending PACA licensee. The Judicial Officer failed to do

this.

As noted above, in reaching the conclusion that Taylor and

Finberg were not merely nominal officers of Fresh America, the

Judicial Officer relied primarily on three factors: the

petitioners’ professional backgrounds; annual reports and proxy

statements that listed the petitioners as officers; and petitioners’

knowledge of Fresh America’s financial difficulties. Each of

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these factors may be relevant in determining whether a person

is merely a nominal officer. However, none of these factors,

without more, is dispositive. Indeed, even taken together, these

three factors do not demonstrate a person’s actual power and

authority within a company. Petitioners may have possessed

impressive professional backgrounds and officer titles, and they

may have been aware of the company’s financial woes, and yet

still have had no power or authority to alter the course of

company operations. 

The decisions in Quinn, 510 F.2d at 747, Minotto, 711 F.2d

at 407, and Bell, 39 F.3d at 1200, make it clear that an

individual’s background may be relevant to the determination of

whether he or she is a nominal officer. But we have never found

this factor to be dispositive. If an individual has past experience

in upper-level management, this would be consistent with a

finding that the individual is currently working in upper-level

management. But past experience is not proof of one’s current

station.

Similarly, although an individual’s title can be relevant to

a consideration of a person’s current situation, title alone is not

dispositive. Indeed, the statute makes this absolutely clear.

Section 499a(b)(9) states that an “officer” “shall not be deemed

to be responsibly connected” if the person demonstrates that he

or she was only “nominally” an officer of the violating licensee.

Obviously, title alone is not conclusive, unless the officer fails

to demonstrate by a preponderance of the evidence that he or she

was not actively involved in the activities resulting in a violation

of PACA and that he or she was only nominally an officer of a

violating licensee. The nominal officer exception plainly

contemplates situations in which a person’s title is not consistent

with the person’s actual responsibilities. 

The Judicial Officer erred in holding that, “absent very

extraordinary circumstances, an individual who is an officer of

a publicly traded company, and identified as an officer in the

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company’s filings with the SEC, cannot be found to be a

nominal officer as that term is used in the PACA.” Judicial

Officer Decision at 14, 1 J.A. 20. This is not a correct statement

of the governing law. “[A]n officer may be ‘nominal’ even

though the corporate records . . . make him out to be a real one.”

Bell, 39 F.3d at 1202. The Department characterizes the Judicial

Officer’s opinion on this point as mere dictum or as an

alternative holding. Resp’ts’ Br. at 39-40. We disagree, for it

is clear that the Judicial Officer viewed Fresh America’s SEC

filings as a critical factor in his decision.

Finally, the Judicial Officer cited Taylor and Finberg’s

knowledge of Fresh America’s financial difficulties in

determining that they were responsibly connected to the

licensee. This, too, resulted in an erroneous application of the

law. Knowledge may be relevant with respect to a consideration

of whether a person was “actively involved in the activities

resulting in a violation” of the statute. However, knowledge,

without more, surely does not give compelling evidence of a

person’s actual power and station within a company. This court

has made it clear that “neither the statutory definition of

‘responsibly connected’ nor the statutory ‘nominal’ and ‘alter

ego’ exceptions suggest such a knowledge requirement.”

Kleiman & Hochberg, 497 F.3d at 692 (accompanying

parenthetical omitted).

In Minotto, this court found that there was no evidence to

“support the [Department Hearing Officer’s] conclusion that

Minotto knew or should have known of the Company’s

misdeeds.” 711 F.2d at 409. But this statement was offered to

confirm that Minotto “had no policy or decision-making role”

and “was essentially a clerical employee.” Id. This is very

different from saying that it must be assumed that a person with

knowledge of a company’s wrongdoings has meaningful power

and authority within the company. There are many people in

company operations who may be aware of bad deeds by virtue

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17

of where or for whom they work, but nonetheless decline to

participate in these deeds and have no power or authority to

effect change. Indeed, in this case, Taylor and Finberg knew

that Fresh America was in danger of violating PACA, but they

failed to convince the board to promptly pay produce sellers.

Just as a lack of knowledge cannot save a non-nominal officer

from the consequences of PACA, Kleiman & Hochberg, 497

F.3d at 692, mere knowledge of PACA violations cannot turn a

nominal officer into a full-fledged one.

As our decisions have made clear, actual power and

authority are the crux of the nominal officer inquiry. In Bell, the

petitioner “seem[ed] to have been made an officer and a director

of Sunrise for the administrative convenience of the company”

and “never participated in the formal decisionmaking structures

of the corporation, such as board meetings.” 39 F.3d at 1204.

Similarly, Minotto “had no policy or decision-making role,”

Minotto, 711 F.2d at 409, and Quinn “did not to any extent

participate in the management of the company’s affairs,” Quinn,

510 F.2d at 753.

In this case, the Judicial Officer specifically found that

“[t]he board of directors, with Mr. Hollingsworth as chairman,

ran Fresh America.” Judicial Officer Decision at 15, 1 J.A. 21.

He also tellingly found that “Mr. Hollingsworth and the board

of directors made decisions usually reserved for individuals at

a lower level of authority,” id. at 15-16, 1 J.A. 21-22. Yet, the

Judicial Officer failed to take this into account in assessing

whether the petitioners were merely nominal officers. 

In sum, the Judicial Officer purported to apply the “actual,

significant nexus” test, yet failed to consider whether Taylor or

Finberg had actual power and authority at Fresh America. This

defies reasoned decisionmaking. As the Court noted in

Allentown Mack:

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Reasoned decisionmaking, in which the rule announced is

the rule applied, promotes sound results, and unreasoned

decisionmaking the opposite. The evil of a decision that

applies a standard other than the one it enunciates spreads

in both directions, preventing both consistent application of

the law by subordinate agency personnel (notably ALJ’s),

and effective review of the law by the courts. 

522 U.S. at 375. Because the Judicial Officer did not faithfully

apply the applicable legal standard in determining whether the

petitioners were responsibly connected to Fresh America, we

vacate and remand to the agency to apply the correct legal

standard as we articulate it today. “It is hard to imagine a more

violent breach of [the reasoned decisionmaking] requirement

than [when an agency] appl[ies] a rule of primary conduct or a

standard of proof which is in fact different from the rule or

standard formally announced.” Id. at 374. We express no

opinion on whether Taylor was actively involved in Fresh

America’s PACA violations, because the Judicial Officer never

reached this issue.

C. The Judicial Officer’s Decision that Fresh America Was

Not the Alter Ego of Arthur Hollingsworth

Section 499a(b)(9) states:

A person shall not be deemed to be responsibly connected

if the person demonstrates by a preponderance of the

evidence that the person was not actively involved in the

activities resulting in a violation of [PACA] and that the

person . . . was not an owner of a violating licensee . . .

which was the alter ego of its owners.

The petitioners claim that the Judicial Officer erred in holding

that Fresh America was not the alter ego of its chairman of the

board, Arthur Hollingsworth. We disagree.

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19

As we noted in Kleiman & Hochberg, “the ‘alter ego’

exception applie[s] to cases in which the violator, although

formally a corporation, is essentially an alter ego of its owners,

so dominated as to negate its separate personality. A petitioner

who [is] not a true owner of such a corporation [will] be spared

the consequences of the responsibly connected determination.”

497 F.3d at 692 n.8 (brackets in original) (internal quotation

marks omitted). In this case, the Judicial Officer found that “the

record contains no evidence that Mr. Hollingsworth and Fresh

America Corp. were viewed as one and the same.” Judicial

Officer Decision at 16, 1 J.A. 22. This finding is clearly

supported by substantial evidence. A fair reading of the entire

record reveals that Fresh America was dominated by the board

and its chairman, not by Hollingsworth alone. We therefore find

no merit in petitioners’ arguments on this point.

III. CONCLUSION

The petition for review is granted in part. The Judicial

Officer’s decision on the nominal officer issue is vacated and the

case is hereby remanded to the agency for further proceedings

consistent with this opinion.

USCA Case #09-1270 Document #1295851 Filed: 03/02/2011 Page 19 of 27
BROWN, Circuit Judge, dissenting: The court vacates the 

Judicial Officer’s determination that Taylor and Finberg were 

responsibly connected to Fresh America because my 

colleagues believe the Judicial Officer “misapplied” our 

“actual, significant nexus” test. Maj. Op. 13. I respectfully 

disagree. It is the court that misapplies the test in two 

respects: First, the court fails to defer to the Judicial Officer’s 

legitimate focus on Taylor and Finberg’s actual knowledge of 

their company’s violations, in combination with other 

relevant indicators of their “responsibly connected” status,

even though we have previously suggested such knowledge 

may be dispositive. Second, the court makes “power and 

authority” the sine qua non of responsible connection to the 

PACA-violating company, even though we have previously 

denied such a requirement.

I

The Judicial Officer found that Taylor and Finberg were 

“responsibly connected” to Fresh America under the “actual, 

significant nexus” test, in part because “they knew, or should 

have known, about the violation being committed and failed 

to counteract or obviate the fault of others.” Judicial Officer 

Decision at 13–14, 1 J.A. 19–20. Specifically, the Judicial 

Officer found, “Ms. Taylor and Mr. Finberg knew of Fresh 

America Corp.’s financial difficulties. Although they told the 

board of directors of the prompt payment provisions of the 

PACA, they failed to convince the board of directors to 

comply with the provisions of the PACA.” Id. at 14, 1 J.A. 

20. The record amply supports this finding. Finberg testified 

that at one point he called a meeting of the board without the 

chairman’s permission, and he and Taylor talked to the board 

about Fresh America’s late produce payments for “ten or 

fifteen minutes.” Hearing Tr. (Jan. 30, 2008) at 813, 1 J.A.

289. Taylor testified that she discussed “PACA payables” 

USCA Case #09-1270 Document #1295851 Filed: 03/02/2011 Page 20 of 27
2

with Hollinger, but he responded, “PACA people [who] want 

to get paid in . . . 30 days” were “crybabies.” Id. at 545, 1 J.A. 

215. She recalled that when a $5 million investment came in, 

it was made clear “that additional money . . . was not to be 

used to pay down PACA payables.” Id. at 546, 1 J.A. 216.

Contrary to the court’s suggestion, the Judicial Officer 

did not hold that “mere knowledge of PACA violations [can] 

turn a nominal officer into a full-fledged one.” Maj. Op. 17.

We need not decide whether knowledge of company 

wrongdoing is sufficient by itself, because the Judicial Officer 

also relied in part on the officers’ high levels of 

compensation—a detail the court does not mention. Judicial 

Officer Decision at 11–12, 1 J.A. 17–18. The Judicial Officer 

found Taylor and Finberg earned salaries of $175,000 and

$145,000, respectively, and compensation packages that 

included “bonus potential, stock options, and other ‘fringe 

benefits.’” Id. Compensation is a relevant consideration under 

the “actual, significant nexus” test. See Minotto v. USDA, 711 

F.2d 406, 408–09 (D.C. Cir. 1983).

Moreover, the Judicial Officer expressly considered 

Taylor and Finberg’s “experience, training, and education,” 

Judicial Officer Decision at 13, 1 J.A. 19, which were 

consistent with genuine officers’. Id. at 10–13, 1 J.A. 16–19.

Like compensation, professional qualifications are relevant to 

the “actual, significant nexus” test. See Veg-Mix, Inc. v. 

USDA, 832 F.2d 601, 612 (D.C. Cir. 1987) (“[The officer’s] 

legal training put him on notice of the responsibilities of a 

corporate director. . . . Thus his case is easily distinguishable 

from those of the nominal officer and corporate director in 

Quinn and Minotto, who were unsophisticated persons 

employed by the wrongdoers.”); Minotto, 711 F.2d at 409 

(reversing the Department’s “responsibly connected” 

determination because, among other reasons, the so-called

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3

officer “lacked both the training and the experience to be an 

active director”).

Taylor is a certified public accountant with prior 

experience as a “chief financial officer and vice president of 

finance and administration” at The Great Train Store, a 

company she helped to take public. Immediately before 

coming to Fresh America, she worked with the CEO of 

another troubled company, Intellisys Group, to get it 

refinanced. When Intellisys was purchased by another 

company, Taylor stayed on to help it through the transition. 

Judicial Officer Decision at 11, 1 J.A. 17.

Finberg was also well qualified to serve as an officer. He 

rose up through the ranks of Fresh America over several 

years, starting with summer jobs at its predecessor company. 

While still in college, Finberg worked full-time as general 

manager of two locations. After graduating, Finberg earned a

series of promotions, serving variously as corporate liaison

with the company’s primary customer, director of customer 

service, director of national programs, and general manager of 

a distribution center. Only after gaining this leadership 

experience was Finberg elevated to vice president of sales and 

marketing, and eventually vice president of business 

development. Id. at 12, 1 J.A. 18.

This case therefore presents the question whether the 

Department’s “responsibly connected” determination is an 

arbitrary and capricious application of the “actual, significant 

nexus” test when the officer has actual knowledge of her 

company’s PACA violations and a salary and résumé in 

keeping with her title. I think not.

We have previously recognized that an officer’s 

knowledge of her company’s PACA violations may be 

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4

decisive under the “actual, significant nexus” test. In Bell v. 

USDA, the possibility that knowledge of company 

wrongdoing might confer “responsibly connected” status on 

an otherwise nominal “officer” led us to remand the 

Department’s decision “for further consideration.” 39 F.3d 

1199, 1202 (D.C. Cir. 1994). Bell was a produce salesman 

who performed no duties “that can be specifically attributed 

to his being vice-president.” Id. at 1200. He had heard, 

however, “that some of the company’s checks had bounced.” 

Id. at 1200. We suggested that even where the employee was 

dubbed an “officer” only “for the administrative convenience 

of the company” and even where he “never participated in the 

formal decisionmaking structures of the corporation,” the 

Department could find him “responsibly connected” by virtue 

of his knowledge of the company’s PACA violations. 39 F.3d 

at 1204. Although the Judicial Officer in Bell had made no 

finding about Bell’s knowledge, we observed “Bell’s 

awareness of some company wrongdoing may provide a 

distinction between this case and Quinn and Minotto.” Id. at 

1204. We rejected the Department’s litigation position that 

under our prior cases “ignorance of company wrongdoing is a 

sine qua non of a finding that an officer’s or director’s 

relation to the corporate licensee was nominal,” id., but we 

implied that the Department could reasonably interpret some 

kinds of knowledge as establishing responsible connection 

per se, and asked the Department on remand to “formulate 

some principle delineating the role of differing degrees of 

knowledge of general corporate difficulties, or of 

‘transactions which gave rise to the underlying violations’, or 

of the violations themselves, consistent with our cases.” Id. at 

1204–05.

Although the Judicial Officer in this case did not set out 

the full taxonomy we requested in Bell, he did make an 

acceptable judgment about how to treat “knowledge . . . of the 

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5

violations themselves.” Id. Remember, Taylor and Finberg 

were found to have actual—not just constructive—knowledge 

of the PACA violations. The Judicial Officer said that when 

Taylor and Finberg “failed to convince the board of directors 

to comply with the provisions of PACA,” their “only option 

to avoid a responsibly connected determination was to resign 

as officers of Fresh America.” Judicial Officer Decision at 14, 

1 J.A. 20. In other words, direct knowledge of a PACA 

violation, in the mind of an “officer” whose compensation, 

“experience, training, and education” are commensurate with 

the title, constitutes “responsible connection” to the violating 

company. 

The court is hard-pressed to call this an unreasonable 

interpretation of the statute, especially since we have stated an 

even harsher rule in dicta. Hart v. USDA, 112 F.3d 1228, 

1231 (D.C. Cir. 1997) (“In order to prove that one was only a 

nominal officer or director, one must establish that one lacked 

any ‘actual, significant nexus with the violating company’ 

and, therefore, neither ‘knew nor should have known of the 

company’s misdeeds.’” (emphasis added) (quoting Minotto,

711 F.2d at 408–09)). The Judicial Officer’s remedy is

certainly “consistent with our cases.” Bell, 39 F.3d at 1204–

05. In fact, it comes straight from Martino v. USDA:

“The fact that an individual has not exercised 

‘real’ authority in the sanctioned company is 

not controlling: certainly the individual could 

have resigned as an officer and director. . . . It 

was his free choice not to do so. Having made 

that choice, the appellant[s] assumed the 

burdens imposed by the Act.”

801 F.2d 1410, 1414 (D.C. Cir. 1986) (quoting Birkenfield v. 

United States, 369 F.2d 491, 494–95 (3d Cir. 1966)).

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6

II

The court recognizes that that an officer’s knowledge of 

his company’s PACA violations is relevant to whether he is

responsibly connected, Maj. Op. 15, but concludes that it 

cannot be dispositive because “actual power and authority are 

the crux of the nominal officer inquiry,” Id. at 16. This turns 

the doctrine on its head. Under our case law, “the crucial 

inquiry is whether an individual has an ‘actual, significant 

nexus with the violating company,’ rather than whether the 

individual has exercised real authority.” Veg-Mix, 832 F.2d at

611. In other words, “[t]he fact that an individual has not 

exercised ‘real’ authority in the sanctioned company is not 

controlling.” Martino, 801 F.2d at 1414. The court now

contradicts these statements by superimposing a “power and 

authority” requirement on the “actual, significant nexus” test.

Until today, that test contained no such requirement. 

Instead, managerial control was a sufficient—but not 

necessary—indicator of the requisite nexus with the violating 

company. See Siegel v. Lyng, 851 F.2d 412, 417 (D.C. Cir. 

1988). We have recognized an officer may be responsibly 

connected to a violating company in multiple ways, of which 

real managerial power is only one. For example, a minority 

shareholder may not have actual power or authority to prevent 

(or even discover) the company’s PACA violations, but our 

cases have approved a sort of strict liability for so-called 

“officers” who hold a certain percentage of the violating 

company’s stock. See Veg-Mix, Inc. v. USDA, 832 F.2d 601, 

611 (D.C. Cir. 1987) (“In Martino, we found that ownership 

interest of 22.2 percent of the violating company’s stock was 

enough support for a finding of responsible connection.”

(citing 801 F.2d at 1414)).

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7

Even if the court’s new “power and authority” test were 

one reasonable interpretation of the statute, it is not the 

interpretation employed by the Judicial Officer in this case,

nor is it required by our precedent. After telling the 

Department it could find at least some kinds of knowledge of 

company wrongdoing to be dispositive evidence of an

officer’s “actual, significant nexus” to the violating company,

see Bell, 39 F.3d at 1204–05, we cannot now declare arbitrary 

and capricious the Judicial Officer’s decision based on Taylor 

and Finberg’s actual knowledge of Fresh America’s 

consummated PACA violations, along with compensation and 

qualifications commensurate with the officers’ titles. We must 

defer to the Department’s reasonable interpretation. See 

Coosemans Specialties, Inc. v. USDA, 482 F.3d 560, 564 

(D.C. Cir. 2007).

III

I do not mean to suggest the Department is bound forever 

to apply the “actual, significant nexus” test. We have 

previously indicated the 1995 amendment to 7 U.S.C. 

§ 499a(b)(9) might call for different criteria. See Norinsberg 

v. USDA, 162 F.3d 1194, 1199 (D.C. Cir. 1998). Perhaps, we 

could have viewed Kleiman & Hochberg, Inc. v. USDA, 497 

F.3d 681 (D.C. Cir. 2007), as a paradigm shift rendering the 

old test obsolete. Instead, the court treats that case as 

discerning a “power and authority” requirement in the 

“actual, significant nexus” test even though we neither 

mentioned that test nor suggested the officer’s managerial 

control was the cause-in-fact—much less a necessary 

condition—of his responsible connection to the company. See 

497 F.3d at 692. He also owned 31.6 percent of the 

company’s stock, id., which is more than “enough support for 

a finding of responsible connection,” Veg-Mix, Inc., 832 F.2d 

at 611. I have no objection in principle to a demand for

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8

evidence of “power and authority.” But the Judicial Officer in 

this case explicitly employed the “actual, significant nexus” 

test, Judicial Officer Decision at 13, 1 J.A. 19, and neither the 

parties nor my colleagues have seen fit to challenge its 

applicability.1

1 We have the authority to consider the propriety of the 

Department’s continued application of the “actual, significant 

nexus” test even if the parties do not object. “[T]he appellate court 

. . . always possesses discretion to reach an otherwise waived issue 

logically ‘antecedent to and ultimately dispositive of the dispute 

before it.’” Crocker v. Piedmont Aviation, 49 F.3d 735, 740 (D.C. 

Cir. 1995) (quoting United States Nat’l Bank of Oregon v. 

Independent Ins. Agents of America, 508 U.S. 439, 447 (1993)).

If the “actual, significant nexus” test applies, as 

the court holds it does, the Judicial Officer reasonably 

determined Taylor and Finberg’s direct knowledge of their 

company’s PACA violations, combined with their officerappropriate salaries and qualifications, makes them 

responsibly connected to the violating company. Only if that 

test does not apply may a finding of “power and authority” be 

required instead. We cannot have it both ways.

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