Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-93-01303/USCOURTS-caDC-93-01303-0/pdf.json

Parties Involved:
Jean-Pierre Bell
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 September 14, 1994 Decided November 15, 1994

No. 93-1303

JEAN-PIERRE BELL,

PETITIONER

v.

DEPARTMENT OF AGRICULTURE;

UNITED STATES OF AMERICA,

RESPONDENTS

Petition for Review of an Order of the

U.S. Department of Agriculture

Stephen P. McCarron argued the cause and filed the briefs for appellant.

Stephen M. Reilly, Attorney, United States Department of Agriculture, argued the cause for

respondents. With him on the brief were James Michael Kelly, Associate General Counsel, and

Raymond W. Fullerton, Assistant General Counsel, United States Department of Agriculture.

Before: WALD, WILLIAMS and GINSBURG, Circuit Judges.

Opinion for the Court filed by Circuit Judge WILLIAMS.

WILLIAMS, Circuit Judge: Petitioner Jean-Pierre Bell seeks review of a final order issued by

the Department of Agriculture, in which he was found to have been "responsibly connected" with

Sunrise Produce, an agricultural products marketing company that violated the Perishable

Agricultural Commodities Act of 1930, 7 U.S.C. § 499a et seq. (1988). Because we find that the

Department erroneously applied a per se standard to find Bell "responsibly connected" to Sunrise,

we remand the case to the Department for further proceedings consistent with this opinion.

* * *

The Perishable Agricultural Commodities Act ("PACA") requires merchants of fresh fruits

and vegetables to obtain a license from the Department of Agriculture. 7 U.S.C. §§ 499a(4), 499c

(1988). PACA makes it unlawful for licensees to fail or refuse to "make full payment promptly" for

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such products, id. § 499b(4), and allows the Secretary to revoke the license of those guilty of

"flagrant or repeated" violations. Id. § 499h(a).

Furthermore, no licensee may employ a person who has been "responsibly connected" with

such a violator, id. § 499h(b), and PACA defines a person as "responsibly connected" with a licensee

if he or she is "affiliated" with the licensee "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." Id.

§ 499a(9). Thus, when the Secretary revokes a license, he bars persons responsibly connected with

the violator from employment in the industry for at least one year, whether or not they participated

personally in the violation. Martino v. United States Dept. of Agriculture, 801 F.2d 1410, 1411

(D.C. Cir. 1986).

In 1979 Bell left his job as a restaurant chef and went to work as a produce salesman at

Sunrise Produce, a District of Columbia corporation and a PACA licensee. Sunrise's then owners,

Dan Stalling and Jerry Rock, hired Bell because of his expertise in produce and his contacts in the

restaurant world. When conflicts later began to arise between the owners, they appointed Bell as

president of Sunrise so that he might mediate their disputes.

In 1983 or 1984 William Mailley, Jr. bought Rock's share of Sunrise and, soon thereafter,

Stalling's. Mailley became president and made Bell the vice-president. Whatever Bell's duties under

Stalling and Rock, he performed none under Mailley that can be specifically attributed to his being

vice-president. He never signed checks or agreements; he never filed PACA license renewals; he

had no access to Sunrise books or records. He just sold produce.

After Mailley assumed control of the company, Bell occasionally heard talk "on the street"

that Sunrise had "some outstanding debt". As one of his friends from another company told him, "the

tab was pretty big." Joint Appendix ("J.A.") 84. On Bell's inquiry, Mailley said that he owed "quite

a bit of money on the street and slowly slowly he was paying off those old debts from the two

previous owners." J.A. 84-85. On some later occasions, while handling the office phone for the

convenience of Mailley, Bell heard that some of the company's checks had bounced.

In March 1988, Bell quit his job at Sunrise after a spat with Mailley. A few days later, he

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returned to work on the conditionaccording to his and Mailley's later testimonythat he not

resume his title as vice-president, because he wanted to be "just ... an employee." J.A. 86, 104.

Mailley testified that he never made the change on paper, however, because "[Bell's] title ... didn't

mean anything anyway. So it didn't matter whether I changed anything or not to myself anyway

because he really didn't have any say so in what was going on anyway." J.A. 104.

At some point Mailley elected Bell a director of Sunrise. Minutes of the annualshareholders'

meeting, attended only by Mailley as sole shareholder, show Bell elected to the board on April 6,

1988 and re-elected on April 6, 1989. As there were no directors' meetings, Bell attended none. In

1988 and 1989, however, he signed waivers of notice of such meetings. Purported minutes of the

annual directors' meetings in those years record his election as vice-president. During the period of

the violations, Mailley listed Bell on the PACA license as vice-president and director of the

corporation.

Between November 1988 and February 1990, Sunrise committed the violations giving rise

to revocation of its license. It purchased 775 lots of perishable agricultural commodities from 28

sellers, for over $600,000, and failed to make full payment of the agreed purchase prices. The

Department issued an administrative complaint against Sunrise under PACA and on December 23,

1991 entered a default finding of willful, flagrant, and repeated violations of the Act.

Because ofthe documentslisting Bell as an officer and director of Sunrise, the PACA Branch

of the Department's Fruit and Vegetable Division notified Bell that it might find him responsibly

connected to Sunrise. Bell contested the classification. After a hearing, a departmental "Presiding

Officer" found Bellresponsibly connected during the relevant period. He relied on Bell's being listed

as vice-president and director on various forms and corporate records, and on the lack of any

evidence that Mailley had ever initiated formal action to remove him as an officer. Bell petitioned for

review within the Department. The Acting Administrator of the Agricultural Marketing Service

affirmed, and Bell seeks review here pursuant to 28 U.S.C. § 2342 (1988).

* * *

In this circuit, we have consistently read §§ 499a(9) and 499h(b) as establishing only a

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rebuttable presumption that an officer, director, or major shareholder of a PACA violator is

responsibly connected to the violator. See, e.g., Veg-Mix, Inc. v. United States Department of

Agriculture, 832 F.2d 601, 611 (D.C. Cir. 1987); Minotto v. United States Department of

Agriculture, 711 F.2d 406, 408 (D.C. Cir. 1983); Quinn v. Butz, 510 F.2d 743, 756 (D.C. Cir.

1975). Other circuits have read § 499a(9) as establishing a flat per se rule. The gulf may not be so

great as the difference in terminology suggests, though, for the other circuits' decisions construing

the phrase "responsibly connected" have all involved persons holding more than 107 of the

corporation's shares, where a finding that the relationship was nominal would be more difficult.

Hawkins v. Agricultural Marketing Service, 10 F.3d 1125 (5th Cir. 1993); Faour v. United States

Department of Agriculture, 985 F.2d 217 (5th Cir. 1993); Pupillo v. United States, 755 F.2d 638

(8th Cir. 1985); Birkenfield v. United States, 369 F.2d 491 (3d Cir. 1966).

We have identified two sets of circumstances under which a petitioner may rebut the

presumption that he is responsibly connected with a corporate violator because he is an officer,

director, or major shareholder. The first involves 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." Quinn, 510 F.2d at 758. Thus, in Quinn, we indicated that an officer might meet this

test by showing that the sole stockholder of the corporation " "effectively retained the decision

making power in all aspects of corporate decision making,' " id. at 757, so that the company was not

really a corporation within the meaning of 7 U.S.C. § 499a(9), but rather a sole proprietorship.

Quinn did not specify what powers a sole shareholder would have to exercise, beyond those that

normally attend sole ownership, for the corporation to constitute an alter ego.

The second way of rebutting the presumption is 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." Minotto, 711 F.2d

at 409. Where responsibility was not based on the individual's "personal fault", id. at 408, it would

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1We cannot see any statutory warrant for the view expressed in the Department's brief that the

power to counteract or obviate might flow from the individual's being a "key" employee. 

Respondent's Brief at 30. See also id. at 39 ("Bell's significant nexus to Sunrise was on the sales

side.") Under some other statutes administered by the Department, such as the Federal Meat

Inspection Act, 21 U.S.C. § 601 et seq. (1988), a person is "responsibly connected with the

business if he was a partner, officer, director, holder, or owner of 10 per centum or more of its

voting stock or employee in a managerial or executive capacity." Id. § 671 (emphasis added). 

PACA does not similarly try to punish "key" employees; the language of the statute instead

focuses on officership, directorship, or ownership of a major block of stock as the nexus from

which authority must flow. Thus in Quinn, we did not consider how valuable Carl Quinn was to

DeVita Fruit Company as a buyer and seller, see Quinn, 510 F.2d at 747 (reciting Quinn's

activities), or how much influence he might have wielded over the company by threatening to

withdraw as buyer and seller. Rather, we looked to such matters as whether he was "assigned

duties or paid additional salary as vice-president ... [or] perform[ed] services as vice-president",

id. at 752 (emphasis added), and thus (indirectly) to his ability in that capacity to "counteract" the

fault of others. 

have to be based at least on his "failure to "counteract or obviate the fault of others' ", id.1

* * *

The Presiding Officer paid little heed to circuit law on nominal officers and directors. He

recited that Bell had remained an officer after the end of his role mediating between two owners of

Sunrise and that, despite Bell's request to be removed as vice-president, there was "no evidence to

show that such action was initiated." J.A. 20. He also said that the record "support[ed] the

conclusion that [Bell] was neither enticed nor coerced into being an officer of Sunrise." Id. As to

the directorship, the Presiding Officer noticed corporate records indicating that Bell was a director,

"records that he acknowledged signing". Id.

These findings are quite consistent with a conclusion that Bell's officership and directorship

were nominal within the meaning of Quinn and Minotto. Quinn was indisputably a vice-president on

paper. After the sole proprietorship for which he worked was incorporated, he became its

vice-president, but his duties did not change, he was paid no additional salary, and he never had

anything to do with policy or business decisions. Nor did he have access to company records or any

knowledge of the company's financial difficulties. We said that these circumstances "would

demonstrate not only that Quinn did not to anyextent participate in the management ofthe company's

affairs, but also that he was totally without power to do so; in other words, that Quinn did not bear

any responsible connection with the company." Quinn, 510 F.2d at 753. Although Quinn may be

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distinguishable because of Bell's apparent awareness of some company financial difficulties, the

decision makes clear that an officer may be "nominal" even though the corporate records, such as

those relied on here by the Presiding Officer, make him out to be a real one.

So too for directors. Lilly Minotto, a clerical employee of a PACA licensee, was put on its

board of directors because she was always in the office and could be counted on to attend meetings

and ensure a quorum. She actually attended all nine board meetings held during the four years she

was a director and voted in favor of allresolutions proposed. We held that the "fact that Minotto was

an uncompensated, nominal director who attended Board meetings at the request of her employer

does not support the conclusion that she was "responsiblyconnected'to the violating companywithin

the meaning of the Act." Minotto, 711 F.2d at 409. That we held her not to be responsibly

connected, however, makes it clear that one may hold a paper directorship, and more, and yet be

classified as nominal.

In noting that Bell was "neither enticed nor coerced" into being an officer of Sunrise,J.A. 20,

the Presiding Officer picked up dicta from our decision in Martino, purporting to distinguish Quinn

and Minotto. There, considering two persons who each had held 22.27 of the shares in a PACA

licensee, the court said,

unlike Quinn and Minotto, neither [petitioner] was enticed or coerced by an employer

into the position that renders him "responsibly connected." Absent inveiglement of

that sort, "[s]urely[ ] the relationships of director, officer or substantial shareholder

form a sufficient nexus for the arbitrary conclusion of responsible connection."

801 F.2d at 1414 (quoting Birkenfield, 369 F.2d at 494). In fact, though, Quinn and Minotto are

devoid of evidence of enticement, coercion or inveiglement, except in the vague sense that employees

will typically wish to please their employers. Although such pressures obviously may be relevant to

a finding of "nominal" responsible connection, they are not necessary. Moreover, we note that

because Martino involved substantialshareholders, the likelihood oftheir being found "nominal" was

remote. Cf. Hawkins, 10 F.3d at 1127 (minority shareholder, effectively trapped in close corporation

by majority's conditioning buy-out offer on highly restrictive covenant not to compete, claims he was

nominal shareholder); id. at 1135 (viewing per se application of § 499a(9) in such circumstances as

instance where "the law is a[n] ass") (DeMoss, J., concurring).

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As the Presiding Officer's analysis does not even addressthe issuesraised by our precedents,

we remand the case for further consideration. In doing so, we note the following unresolved

questions.

* * *

Bell's Resignation. Bell testified that he resigned his position, at least as vice-president and

perhaps also as director, in March 1988, months before any of the violations occurred. Asked

whether there came "a time when you left Sunrise Produce of your own [v]olition," J.A. 85, Bell

responded:

Yes. I cannot recall why and how it started but we got involved in some

argument. Honestly I can't recall what it was all about. I said I don't want the

aggravation any more and I said I'm quitting....

It was not for a few days and Mr. Mailley was calling for me and he said

"Jean-Pierre we can sit down and talk and just forget about whatever we were fussing

about." I was making decent money there and over the years, those people were close

to me. We had become friends and I also was feeling bad about it.

So I went back and that's when I told Mr. Mailley I said "look Billy, I don't

want this Vice President title or whatever I have over my head." I say I'm not going

to leave my job. I'm going to stay here and work and do the things I enjoy doing,

talking to my customers, selling and go out in the street and meet people. I'm not

going to quit that. I say as long as things are working fine over here. If you don't run

into more problems, I said "I'm going to stay here." I'm gonna work but I just want

to be an employee. I don't even want to get back this title.

Mr. Mailley agreed with me and there was no reason for meWe were so

close to each other in many ways that it was no reason for me to write a piece of

paper and get him to sign it.

J.A. 86-87. Mailley corroborated this testimony and explained that he failed to remove Bell's name

from the forms "because I was having enough problems of my own" and "it didn't matter whether I

changed anything or not to myself anyway because he really didn't have any say so in what was going

on anyway." J.A. 104-05.

The record appears unclear as to whether Bell ever knew or understood that he was a

"director" (for purposes of PACA). When asked if he was ever a director of Sunrise, he responded:

Well I never recalled being called the director of anything. I knew that my boss, Mr.

Mailley, would refer that I was the Director of Sales. But that was just a word. It

was just a name. It was nothing official. No title was given to me. We never even

discussed anything like that.

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J.A. 83. It is undisputed that Bell never attended directors' meetings, because none was ever held.

As election "without proof of acceptance" is generally insufficient under corporate law to establish

directorship, see 3 Beth Buday & Gail O'Gradney, Fletcher Cyclopedia of the Law of Private

Corporations § 995 (Perm. ed. 1994), Bell's testimony, plus the absence of directors' meetings,

suggest that he may never legally have become a director.

To the extent that Bell was aware at all of his directorship, he may have collapsed his two

roles, as vice-president and as director, into one. Therefore, the reference to becoming "just ... an

employee" and to eliminating "thistitle" could refer to shedding not only his vice-presidency but also

the directorship.

The Presiding Officer accepted the testimony that Bell briefly left the firm in 1988, but put

a different spin on Bell's account of the conversation when he came back, turning what appearsto be

an oral resignation into a request for action by Mailley. He wrote, "[Bell] testified that when he

returned to the firm, he asked Mailley to take the necessary action required to remove him from the

position of vice-president. The record does not contain evidence to show that action was initiated."

J.A. 17.

The Presiding Officer's analysis assumes that some written action by Mailley was necessary

to make Bell's resignation effective. But as we noted in Veg-Mix, 832 F.2d at 613, a director's

resignation ordinarily need not be in writing. The record does not indicate that Sunrise's articles of

incorporation imposed any additional formalities on resignation. Compare id. In Veg-Mix we

explicitly rejected claimsthat the failure ofthe sole shareholderto remove the director fromthe forms

made the resignation ineffective and that the ex-director could revoke hisresignation by later signing

documents under the mistaken belief that he was still a director. Id.

To contradict Bell's testimony about his resignation, the Department presented two kinds of

evidence. The first was Bell's signature on two "Waiver of Notice" forms for the annual meetings of

Sunrise's board of directors, dated April 6 of 1988 and of 1989. Bell testified that in signing one of

these forms (presumably in 1988), he assumed he was giving written confirmation of his resignation

as vice-president. J.A. 87-88. The Presiding Officer found that because the documents were "clearly

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identified" and "signed in successive years", it was "hardly conceivable that Petitioner could have

believed the documents contained his resignation as the vice-president of Sunrise." J.A. 17. But if

Bell had previously effectively resigned, hissignature on waivers of notice could make hima director

again only if it represented knowing acceptance of re-election after that resignation. See Veg-Mix,

832 F.2d at 613. If the Presiding Officer regarded the signatures as manifesting such acceptance, he

made no finding to that effect.

The second kind of evidence, discussed above, was the purported minutes of the 1988 and

1989 shareholders' and directors' meetingsrecording Bell'sre-election as vice-president and director

of Sunrise. If Bell's resignation was effective, however, the creation of such minutes by Mailley's

lawyer would not legally re-elect Bell unless he knowingly accepted election.

Thus, unlessthe Presiding Officer discreditedBell'stestimony of an oralresignation, or unless

there is some reason that such a resignation was ineffective at the time, or unless Bell was legally

re-instated as a director or officer, he was not a director or officer of Sunrise, nominal or real, during

the relevant period.

Nominal officer or director. Like Quinn and Minotto, Bell seems to have been made an

officer and a director of Sunrise for the administrative convenience of the company as it completed

paperwork for PACAand for legallyrequired corporate formalities. Moreover, like Quinn, Bell never

participated in the formal decisionmaking structures of the corporation, such as board meetings; the

meetings were never held, and the structures existed only on paper. J.A. 103-04. In that sense, Bell's

case is more compelling than that of Minotto, who attended all board meetings and voted on

resolutions.

Bell's awareness of some company wrongdoing may provide a distinction between this case

and Quinn and Minotto. A friend in a company across the street told Bell of "outstanding debt", id.

at 84, saying that "the tab was pretty big." Id. Since Bell understood the debt to be connected with

Mailley's obligationsto the persons he had bought out, J.A. at 84, 84-85, 94, 98, at least some of the

information he received was irrelevant to Sunrise's PACA violations, and indeed may have long

antedated the period of violations. Suppliers of Sunrise evidently would occasionally complain that

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"Billy[Mailley]'s check bounced",J.A. at 85, but the frequency is unclear. Moreover, to the question,

"Did people come to you when they were not paid?" Bell answered unequivocally "No." J.A. 92.

This clearly means suppliers did not regard Bell as having authority to bring about payment by

Sunrise; it may also suggest that he was not even on notice of serious complaints. Further, Bell's

most pertinent knowledge, relating to bouncing checks, evidently reached him not in his capacity as

salesman but by the accident of his answering the office phone for Mailley's convenience. J.A. 84-85.

While the Presiding Officer did not really attempt to applyQuinn or Minotto, the Department

argues here that under our casesignorance of companywrongdoing is a sine qua non of a finding that

an officer's or director's relation to the corporate licensee was nominal. Our cases do not lay down

any such rule. True, we noted that Lilly Minotto "denied knowledge of the Company's transactions

which gave rise to the underlying violations." 711 F.2d at 408. But our decision never said that was

a prerequisite to status as a nominal director. Moreover, Minotto was the licensee's bookkeeper and

accountant, always on hand in its office, and an undeviating attender of board meetings, and our

decision never explored the possible conflict between her denial and anynaturalinferencesfromthose

facts. On remand, if the Department reaches the issue, it must 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.

Alter Ego. Contrary to the Department's contention, Bell adequately raised below the issue

of whether the substance and form of Mailley's control over Sunrise was such as to "negate its

separate personality", Quinn, 510 F.2d at 758, thus making it impossible to classifyBell as an officer

or director. In his petition for review within the Department, Bell argued that "Sunrise Produce

operated under the exclusive direction of Mailley and his attorney", that there "were no actual

corporate formalities" observed by Sunrise, that Mailley operated the business himself, and that his

lawyer "completed formsto make it appear that there were directors and officers and meetings when,

in fact, there were none." J.A. 8. Moreover, much of the testimony at the hearing went to the

question of Mailley's control of Sunrise and to the insubstantiality of the corporate forms. See, e.g.,

J.A. 87-88, 103-05.

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2We note that the Department has used the concept of alter ego offensively, finding a person

"responsibly connected" with a licensee even though he was not an officer, director, or a major

shareholder, entirely on the theory that it was his alter ego. In re Midland Banana & Tomato

Co., Inc., PACA Docket Nos. D-93-548, D-93-549, --- Agric. Dec. ---- (U.S.D.A. 1994); see

also In re Perfect Potato Packers, Inc., 45 Agric. Dec. 338 (U.S.D.A. 1986) (applying alter ego

doctrine under § 499h(c) to revoke a PACA license on the grounds that it was fraudulently

obtained by the alter ego of a man barred from employment in the industry). 

Indeed, the proof showed a corporation no more substantial than that described in Quinn.

Here, asthere, "all decision making in this corporation was done by" the sole stockholder, who chose

the directors and officers and made all corporate policy decisions. 510 F.2d at 757. While in Quinn

policydecisions were made "where appropriate through [the] Board of Directors", id., here the board

never even went through a charade of a meeting. And although in Quinn we did not dispositively rule

that the facts asserted showed enough dominance to require disregard ofthe corporate form, that was

surely the implication of our remand for a hearing on Quinn's offer of proof.2

Accordingly, on remand the Department must consider in the light of Quinn whether Sunrise

was the alter ego of Mailley and thus in effect a sole proprietorship during the period of the

violations. If so, Bell could not be its officer or director, and thus could not be responsibly connected

with it within the meaning of the Act.

* * *

Because the PresidingOfficer disregarded the limits of § 499a(9)stated inQuinn and Minotto,

and ignored our law about the effectiveness of oral resignation as set forth in Veg-Mix, we remand

for further consideration in light of this opinion.

So ordered.

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