Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-99-01505/USCOURTS-caDC-99-01505-0/pdf.json

Parties Involved:
Kirby Produce Company, Inc.
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 November 9, 2000 Decided August 3, 2001

No. 99-1505

Kirby Produce Company, Inc.,

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

Paul T. Gentile argued the cause for petitioner. With him

on the briefs was Kevin P. Claffey.

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

brief were James Michael Kelly, Associate General Counsel,

U.S. Department of Agriculture, and Margaret M. Breinholt,

Acting Assistant General Counsel.

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Before: Williams and Garland, Circuit Judges, and

Silberman, Senior Circuit Judge.

Opinion for the Court filed by Circuit Judge Garland.

Garland, Circuit Judge: Kirby Produce Company, Inc.

petitions for review of an order of the Department of Agriculture, which revoked its license as a merchant of perishable

agricultural products for not promptly paying for fruit and

vegetable shipments, in violation of the Perishable Agricultural Commodities Act (PACA), 7 U.S.C. s 499a et seq. The

Agriculture Department revoked Kirby's license without a

hearing, concluding that there was no dispute of material fact

warranting a hearing. Because the grounds upon which the

Department made that conclusion were arbitrary and capricious, we grant the petition and remand for further proceedings.

I

PACA regulates "the shipment of perishable agricultural

commodities in interstate and foreign commerce through a

system of licensing and administrative supervision of the

conduct of licensees." Quinn v. Butz, 510 F.2d 743, 746 (D.C.

Cir. 1975). Every "commission merchant" of such commodities must be licensed by the Secretary of Agriculture. See 7

U.S.C. s 499c.1 PACA licensees are forbidden to engage in

specified unfair practices, including the failure to "make full

payment promptly in respect of any transaction" in a perishable agricultural commodity. 7 U.S.C. s 499b(4). "Full,

prompt payment" means payment within ten days after the

date the produce is accepted, unless otherwise agreed to in

writing before the time of sale. 7 C.F.R. s 46.2(aa)(5), (11).

If the Secretary determines that a licensee has violated the

prompt payment requirement, the Secretary may suspend the

offender's PACA license, and, if the violation was flagrant or

repeated, may revoke it. 7 U.S.C. s 499h(a).

__________

1 A "commission merchant" is "any person engaged in the

business of receiving in interstate or foreign commerce any perishable agricultural commodity for sale, on commission, or for or on

behalf of another." 7 U.S.C. s 499a(5).

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Although the Secretary is statutorily authorized to revoke a

license for flagrant violations, Department of Agriculture

policy during the relevant time period permitted a licensee to

avoid revocation by making full payment prior to the date set

for a hearing on the violations. Such payment would convert

a "no-pay" case into a "slow-pay" case, and would result in

license suspension rather than revocation. See In re Kirby

Produce Co., 58 Agric. Dec. 1011 (1999) (citing In re Gilardi

Truck & Transp., 43 Agric. Dec. 118 (1984)).2

In March 1996, various creditors, including PACA creditors, filed suit against Kirby in the United States District

Court for the Eastern District of Tennessee, seeking payment

for produce debts worth $2.3 million. In June 1996, the

district court issued an order, consented to by all parties, that

established a payment arrangement and claims procedure.

The order did not require payment by a date certain. See

Brown's Produce v. Kirby Produce Co., No. 3:96-cv-526

(E.D. Tenn. June 25, 1996).

On October 20, 1997, the Agriculture Department's Agricultural Marketing Service (the "Service") filed an administrative complaint, charging Kirby with violating PACA by failing

promptly to make full payment for approximately $1.6 million

in fruits and vegetables from August 1995 through July 1996.

The complaint sought revocation of Kirby's license for willful,

flagrant, and repeated violations. Kirby's amended answer

denied the complaint's material allegations, and the Service

requested a hearing. The Administrative Law Judge (ALJ)

scheduled one for January 13, 1999.

On November 10, 1998, Kirby's attorney filed a motion with

the ALJ, seeking an adjournment of the hearing until Kirby

paid its judgment creditors pursuant to the June 1996 order

in the Brown case. The motion advised the ALJ of the

Brown order and attached a copy. It also noted that "the

payment of all produce debt prior to the hearing substantially

__________

2 The Department has since changed its standard for no-pay

cases. For all complaints filed after January 25, 1999, a case is

deemed no-pay if the alleged debts remain unpaid by the earlier of:

(a) the hearing date, or (b) 120 days after the filing of the complaint.

See In re Scamcorp, Inc., 57 Agric. Dec. 527, 562 n.13 (1998).

reduces the potential sanction which may be imposed upon

the Respondent," and concluded that "[f]ailure to grant this

motion for adjournment will frustrate the order ... and

prejudice Respondent's position at the time of the hearing."

App. at 20.

Shortly thereafter, the Agricultural Marketing Service filed

a motion with the ALJ, seeking a decision on its complaint

without a hearing. The Service contended that Kirby's consent to the Brown order constituted an admission of all

material facts in the complaint. It argued that this admission, coupled with Kirby's apparent inability to pay prior to

the hearing date, justified a decision without a hearing.

Kirby objected on the grounds that the Brown order was an

admission of nonpayment only as of June 1996, and that it

still had the right to demonstrate full payment before the

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January 1999 hearing date.

On December 31, 1998, the ALJ canceled the hearing and

revoked Kirby's license, concluding that Kirby's motion and

attachments had admitted "all the material allegations of fact

contained in the complaint." On May 28, 1999, Kirby appealed to the Agriculture Department's Judicial Officer, to whom

the Secretary has delegated authority for final decisionmaking in adjudicatory proceedings. See 7 C.F.R. s 2.35. Kirby

contended, inter alia, that it had in fact made full payment by

January 13, 1999, the date for which the hearing had been

scheduled. Notwithstanding that it had violated PACA by

failing to pay promptly, Kirby argued that its full payment by

the date of the hearing converted the case into a slow-pay

case for which revocation was unwarranted.

The Judicial Officer issued his decision on July 12, 1999.

He began by "agree[ing] with Respondent's contention that if

Respondent paid all of its produce sellers by the date of the

hearing, this case would be a 'slow-pay' case," and Kirby

would suffer suspension rather than revocation. In re Kirby

Produce Co., 58 Agric. Dec. at 1011. However, instead of

adjudicating whether Kirby had in fact paid by January 13,

1999, the Officer determined that Kirby's consent to the

Brown order constituted an admission that it had failed to

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pay promptly, and that Kirby's motion for a continuance of

the hearing constituted an admission that the company would

not be able to pay by the hearing date. The Judicial Officer

concluded that these admissions eliminated any issue of material fact and justified revocation of Kirby's license without a

hearing. Thereafter, Kirby sought reconsideration, which the

Judicial Officer denied. Kirby now petitions for review of the

order revoking its license. See 28 U.S.C. s 2342(2).

II

We review final decisions in PACA cases under the deferential standard of the Administrative Procedure Act, 5 U.S.C.

s 706(2)(A), (E). Under that standard, we 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." JSG Trading Corp.

v. USDA, 176 F.3d 536, 541 (D.C. Cir. 1999).

Kirby concedes that it failed promptly to pay creditors for

its PACA debts. But the company contends that it was able

to pay in full--and in fact did pay in full--by the January 13,

1999 scheduled hearing date, and it denies that its November

10, 1998 motion was an admission to the contrary. Accordingly, Kirby argues that there was an issue of material fact as

to its qualification for slow-pay status, and that the Department's decision to revoke its license without a hearing was

arbitrary and capricious.

PACA states that upon issuing a PACA complaint, the

Secretary shall "afford [the respondent] an opportunity for a

hearing thereon before a duly authorized examiner of the

Secretary." 7 U.S.C. s 499f(c)(2). Although a hearing is not

required if there is no genuine factual dispute, see Veg-Mix,

Inc. v. USDA, 832 F.2d 601, 607-08 (D.C. Cir. 1987), the

Agriculture Department's regulations require a hearing "[i]f

any material issue of fact is joined by the pleadings." 7

C.F.R. s 1.141(b). In its briefs and at oral argument, the

Department conceded that if there had been an issue of

material fact regarding Kirby's ability to pay by the schedUSCA Case #99-1505 Document #615033 Filed: 08/03/2001 Page 5 of 8
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uled hearing date, revocation without a hearing would have

been improper.

The Judicial Officer based his conclusion that there was no

material dispute on two grounds. The first was that Kirby's

consent to the Brown order constituted an admission that the

company had not promptly paid its PACA creditors. That

point is correct and undisputed, but it is also plainly insufficient to eliminate dispute as to whether Kirby could have

made full payment by January 13, 1999.

The Officer's second ground was that Kirby's November 10,

1998 motion for an indefinite adjournment constituted an

admission that the company would not be able to pay by

January 13 of the following year. The Judicial Officer did not

explain why it regarded Kirby's motion as an admission.

Indeed, the Judicial Officer reached that conclusion without

adjudicating Kirby's claim that it had in fact made full

payment by January 13, and despite acknowledging that if

Kirby actually had paid by that date, revocation could have

been avoided. See In re Kirby Produce Co., 58 Agric. Dec. at

1011.

Kirby's motion for adjournment stated: "[T]he payment of

all produce debt prior to the hearing substantially reduces the

potential sanction.... Failure to grant this motion for adjournment will ... prejudice Respondent's position at the

time of the hearing." App. at 20 (emphasis added). At oral

argument, the Agriculture Department asserted that the

term "prejudice" referred to Kirby's classification as a no-pay

violator and that, by using the verb "will" rather than "could,"

Kirby implicitly admitted that its PACA debts could not

possibly be paid by the time of the hearing. But under

Agriculture Department precedent, an implicit or equivocal

admission is insufficient to remove a fact from material

dispute. See In re H. Schnell & Co., 57 Agric. Dec. 1722

(1998) (holding that before a hearing may be dispensed with,

oral statements of a respondent's attorney "must clearly

constitute an admission of the material allegations of the

complaint") (emphasis added). That rule is especially apt in

this circumstance. Litigants that move to extend deadlines

often lament the harm likely to result if their motions are

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denied. To construe such a statement as admitting default,

however, confuses prediction of risk with confession of impossibility. Kirby clearly intended to emphasize the risk that its

payments could not be made before January 13, but it was

not reasonable to infer that Kirby intended to admit that nonpayment was certain.

The Judicial Officer's unadorned statement, that Kirby's

request for a continuance of the hearing "constitutes an

admission" that Kirby would not be able to make full payment

by the date of the hearing, did not represent analysis; it

merely expressed a conclusion. Such a conclusion was particularly unreasonable in light of Kirby's protestations that it

had intended no such admission. And it was doubly so in

light of the Judicial Officer's refusal to determine whether

Kirby had in fact paid by January 13, after the Officer

acknowledged that if Kirby had actually met that deadline,

revocation could have been avoided. See In re Kirby Produce

Co., 58 Agric. Dec. at 1011. Indeed, in his decision denying

reconsideration, the Judicial Officer only added to the arbitrariness of his reasoning. There, in the face of Kirby's

representation that full payment had been made prior to

January 13, 1999, and again without determining whether

that representation was correct, the Judicial Officer ruled

that Kirby's "admission" that it "would not be able to" pay

removed any issue of material fact as to whether it actually

did pay by that date. In re Kirby Produce Co., 58 Agric.

Dec. 1032 (1999).

At oral argument, the Department offered to provide this

court with an inspector's affidavit attesting that, as of October

31, 2000, Kirby still had not paid $1.1 million of its PACA

debt. After argument, Kirby submitted a declaration by its

chief executive officer, made under penalty of perjury, that

the company had in fact paid in full prior to January 13, 1999.

Although both statements obviously cannot be true, it is just

as clear that this court is not the proper authority to make

the necessary factual determination. That is a task for the

agency upon remand. See Veg-Mix, Inc., 832 F.2d at 609.

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III

In revoking Kirby's license without a hearing, the Judicial

Officer relied upon his conclusion that the company had

admitted that it could not make payment by the date that had

been scheduled for that hearing. That conclusion was arbitrary and capricious. We therefore grant Kirby's petition for

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

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