No. 95-1735

 

John J. Conforti, doing *

business as C & C Produce, *

*

 Petitioner, *

* Appeal from the United States

 v. * Department of Agriculture.

*

United States of America, *

*

 Respondent. *

 

Submitted: September 11, 1995

 Filed: January 18, 1996 

Before WOLLMAN, LOKEN, and MORRIS SHEPPARD ARNOLD, Circuit Judges. 

MORRIS SHEPPARD ARNOLD, Circuit Judge.

John Conforti appeals the Secretary of Agriculture's decision

sanctioning him for violating the employment restrictions in the

Perishable Agricultural Commodities Act of 1930, 7 U.S.C. § 499h(b)

(1980) ("PACA"). We uphold the Secretary's determination that

Conforti violated PACA, but modify the penalty that the Secretary

imposed. 

I.

PACA was enacted to protect produce growers "from the 'sharp

practices of financially irresponsible and unscrupulous brokers in

perishable commodities.'" In re Lombardo Fruit & Produce Co.,

12 F.3d 110, 112 (8th Cir. 1993) (quoting Hull Co. v. Hauser's

Foods, Inc., 924 F.2d 777, 780 (8th Cir. 1991). PACA requires

wholesale produce dealers to obtain a license from the United
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States Department of Agriculture ("USDA"), 7 U.S.C. § 499c(a), and

prohibits licensees from employing individuals "responsibly

connected" to a company that has failed to satisfy USDA reparation

orders. Id. § 499h(b)(3). Under the statute, a person is

responsibly connected to a company if he serves as a partner,

officer, or director of it, or if he holds more than 10 percent of

its outstanding stock. Id. §§ 499a(9). 

Conforti operates C&C Produce, a licensed produce dealership.

In June, 1993, Conforti hired Joseph Cali, his life-long friend, to

work for C&C Produce. On June 24, 1993, Conforti received a letter

from the USDA informing him that Cali was responsibly connected to

Royal Fruit, a company with several outstanding reparation orders.

The letter indicated that Conforti could not employ Cali after

July 24, 1993, unless he posted a bond that was later set at

$100,000.

Conforti then tried to obtain a bond. He first asked his

insurance company for one, but it required full collateralization.

He next applied for a line of credit at United Missouri Bank

("UMB") to collateralize the bond, but learned that approval would

take three months. Conforti then decided to post $100,000 of his

own funds to guarantee the line of credit. UMB initially approved

the transaction, but changed its mind after the USDA advised the

loan officer that Conforti's license was going to be revoked.

In November, Conforti secured a line of credit at a different bank,

but when he learned that the insurance company charged an

additional $15,000 fee to issue the bond, he "threw up his hands"

and abandoned his efforts. 

Conforti did not fire Cali on July 24 as instructed; he did

not finally fire him until November 19, 1993, after he gave up his

search for a bond. In the interim, the USDA warned Conforti at
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least five times that Cali's continued employment could result in

the suspension or revocation of his PACA license. 

 

Three months after he fired Cali, the USDA filed a complaint

seeking to revoke Conforti's PACA license. The Administrative Law

Judge ("ALJ") found that Conforti had violated PACA and suspended

his license for thirty days. The USDA appealed to the Judicial

Officer ("JO"), who affirmed the ALJ's decision that Conforti

violated PACA but increased the suspension to 90 days. The JO's

decision is the final decision of the Secretary of Agriculture.

7 C.F.R. § 2.35 (1993). Conforti petitioned this court to review

the Secretary's order pursuant to 28 U.S.C. § 2342.

II.

Conforti first argues that the JO improperly found that Cali

was responsibly connected to Royal Fruit. He contends first

that the finding cannot stand in the absence of a predicate finding

in a special hearing on the question of Cali's connection to Royal

Fruit. We disagree. It is true that USDA regulations establish a

procedure to challenge the USDA's "responsibly connected"

designation. 7 C.F.R. §§ 47.48-47.63 (1993). This proceeding,

however, commences after the USDA finds that a person is

responsibly connected, id. § 47.49(a), and nothing in the statute

indicates that PACA's employment restrictions take effect only

after this proceeding is completed. The statute straightforwardly

prohibits employing anyone who is a responsibly connected person as

defined by PACA. 7 U.S.C. § 499h(b). Thus, if the record contains

evidence that Cali was a partner, director, or officer in Royal

Fruit, or held more than 10 percent of Royal Fruit's stock, his

employment is restricted and Conforti violated PACA by employing

him. Id. § 499a(9).

Conforti also maintains that even if a previous hearing under

7 C.F.R. §§ 47.48-47.63 was not required, the record lacks evidence
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indicating that Cali met PACA's definition of a responsibly

connected individual. This argument is without merit. Prior to

issuing his final order, the JO took official notice of an ALJ's

opinion in In re Midland Banana and Tomato Co., PACA Docket No.

D-93-548, and In re Royal Fruit, PACA Docket No. D-93-549 (USDA

1994) ("Royal Fruit"). In Royal Fruit, the ALJ found that Cali was

the President and a director of Royal Fruit and that he held 50

percent of the company's stock. Given these previous findings, we

believe that the JO was justified in concluding that Cali was

responsibly connected.

Conforti contends that the JO was not entitled to consider

these previous findings because he improperly used the device of

official notice. We find no error in the JO's procedure. USDA

regulations allow the JO to take official notice of "such matters

as are judicially noticed by the courts of the United States,"

7 C.F.R.§ 1.141(g)(6) (1993), and the USDA Rules of Practice permit

the JO to consider "any matter of which official notice is taken."

7 C.F.R. 1.145(i) (1993). We have held that "federal courts may

sua sponte take judicial notice of proceedings in other courts if

they relate directly to the matters at issue." Hart v. Comm'r, 730

F.2d 1206, 1207 n.4 (8th Cir. 1984); see also United States v.

Jackson, 640 F.2d 614, 617 (1981). The JO also gave Conforti the

required opportunity to object to the order taking official notice.

5 U.S.C. § 556(e). 

Alternatively, Conforti contends that Cali is not responsibly

connected because he played only a minor role in Royal Fruit.

Conforti points to the ALJ's findings in Royal Fruit that Cali was

by-and-large a "front man" and that Royal Fruit was actually the

"alter ego" of Robert Heimann. Conforti argues that, under the

doctrine adopted in Quinn v. Butz, 510 F.2d 743, 756 (D.C. Cir.

1975), Cali's nominal status in Royal Fruit merely raises a

rebuttable presumption that he is responsibly connected. 
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The central difficulty that Conforti's argument encounters is

that we specifically rejected it ten years ago. See Pupillo v.

United States, 755 F.2d 638, 643 (8th Cir. 1985). We apply a

per se rule: "Section 499a(9) [is] an irrebuttable statement that

an officer, director, or holder of more than ten percent of the

outstanding stock of a corporation is responsibly connected

with that corporation or association." Id. Cali's actual

responsibilities or interests in Royal Fruit are, therefore,

irrelevant to the question of whether he was responsibly connected;

because he was both an officer in the company and held 33 percent

of its stock, he was responsibly connected as a matter of law.

Because we find that the JO's decision that Cali was a

responsibly connected person is supported by substantial evidence,

we affirm it. Pupillo, 755 F.2d at 643.

III.

Conforti also asserts that he did not violate PACA because he

made a good faith effort to obtain a bond and because the USDA led

him to believe that he could continue to employ Cali while he was

searching for a bond. We see how Conforti could have gotten this

impression from his communications with the USDA. Although the

USDA initially told Conforti to obtain a bond or fire Cali by

July 24, the USDA did not set the bond amount until July 16,

leaving very little time before the deadline. Conforti then asked

the USDA to reduce the bond; the USDA denied his request on

August 9. The August 9 letter reiterated that Conforti needed

either to obtain a bond or fire Cali, but it did not mention the

July 24 deadline. On July 30, the USDA sent a letter asking

Conforti whether he intended to fire Cali or to obtain a bond.

Finally in November, after Conforti stopped looking for a bond,

M.A. Clancy, the PACA Licensing Program Review Head, advised him

that if he could not post a bond, he should fire Cali.
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Conforti does not cite any authority to support his official

estoppel argument, and we know of none. In point of fact, the

Supreme Court has repeatedly indicated that an estoppel will rarely

work against the government. See, e.g., Office of Personnel

Management v. Richmond, 496 U.S. 414, 423 (1990). As the Court has

noted, "When the government is unable to enforce the law because

the conduct of its agents has given rise to an estoppel, the

interests of the citizenry as a whole in obedience to the rule of

law is undermined." Heckler v. Community Health Services, 467 U.S.

51, 61 (1984). Therefore, in the absence of "affirmative

misconduct" by the government, INS v. Hibi, 414 U.S. 5, 8 (1973),

"not even the temptations of a hard case" like Conforti's justify

applying an estoppel against the USDA. Federal Crop Ins. Co. v.

Merrill, 332 U.S. 380, 386 (1947). 

We strictly construe PACA's employment restriction, see Hull

Co. v. Hauser's Foods, 924 F.2d 777, 782 (8th Cir. 1991); Pupillo,

755 F.2d at 643, and, as the D.C. Circuit has noted, the

"employment bar is phrased as an absolute." Siegel v. Lyng, 851

F.2d 412, 415 (D.C. Cir. 1988); 7 U.S.C. § 499h(b) ("The Secretary

may . . . suspend or revoke the license of any licensee who, after

the date given in such notice, continues to employ any person in

violation of this section."). Therefore, Conforti's good faith

efforts, however sincere, cannot excuse his failure to fire Cali.

IV.

After the Secretary determines that a licensee violated PACA's

employment restrictions, he may suspend or revoke the license.

7 U.S.C. § 499h. Conforti argues that suspending his license for

90 days was unduly harsh. We review the Secretary's sanction for

an abuse of discretion, affirming it unless it is "without

justification in fact." ABL Produce v. U.S.D.A., 25 F.3d 641, 645

(8th Cir. 1994). Even under this deferential standard, we agree
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that a 90-day suspension was not justified by the facts. We

therefore reverse the JO's sanction and reinstate the ALJ's 30-day

license suspension.

In ABL Produce, 25 F.3d at 645, a license-holder challenged an

order revoking his license for violating PACA's employment

restrictions. We reversed the sanction and reinstated the 30-day

suspension awarded by the ALJ because the JO failed to consider

several "relevant factors," namely, whether the company's conduct

threatens to undermine PACA's purposes, the circumstances of the

violation, and the effect the sanction will have on the company.

Id. at 646. We apply these considerations to the case at hand.

A. 

The JO found that by employing Cali, Conforti threatened to

undermine PACA's purposes. As we have already noted, PACA was

designed to protect produce growers from "sharp" and "unscrupulous"

practices of financially irresponsible brokers. In re Lombardo

Fruit & Produce Co., 12 F.3d at 112. Congress was particularly

concerned about the risk of non-payment. ABL Produce, 25 F.3d at

646.

The record in this case is devoid of evidence that Conforti is

in any way a threat to produce growers. C&C Produce is financially

healthy, and Conforti's suppliers themselves characterized his

payment practices and ethics as "exemplary." The JO disregarded

this information, however, concluding that "Mr. Conforti's ethics,

payment practices, complaints against C&C produce and the financial

health of Mr. Conforti's company are irrelevant." Given the fact

that PACA was intended to protect suppliers, we do not see how this

kind of information can be characterized as irrelevant. The JO

therefore erred when he refused to consider it. 
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The JO further found that employing Cali threatened the

industry because he was responsibly connected to Royal Fruit. As

we have already said, however, Cali was simply a "front-man" who

lacked both authority and an actual interest in Royal Fruit. The

ALJ considered Cali's "front man" status and concluded that "to say

that Mr. Cali was a great risk to the industry is hyperbole." The

JO, on the other hand, disregarded Cali's limited involvement

because it "did not lessen the responsibility of Mr. Cali for

Royal's PACA violations." 

We agree entirely, as we said above, that the extent of Cali's

participation has no bearing on whether he is responsibly connected

to Royal Fruit. Pupillo, 755 F.2d at 643. We believe, however,

that his actual position at Royal Fruit is relevant to whether

Cali's employment at C&C Produce threatened the produce industry.

By disregarding the fact that Cali's role in Royal Fruit was

de minimis, therefore, the JO overstated the threat that Cali's

employment posed to the produce industry. 

B.

The JO also increased the ALJ's sanction because Conforti

"deliberately chose not to heed [the government's] warning" to fire

Cali or obtain a bond. We agree that Conforti should be punished

for employing Cali for four months after the USDA's deadline. We

find, however, that the JO abused his discretion by not considering

the mitigating circumstances in the case. 

As the ALJ noted, Conforti "made a diligent and good faith

effort to comply with the complainant's demands that he obtain a

bond." During the period that Conforti employed Cali, he tried to

obtain a bond from several different sources, and he consistently

updated the USDA about his progress. While, as we have said, we do

not agree with Conforti that his diligence absolves him of guilt in

the matter, we do think that, particularly in light of the mixed
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signals sent by the USDA, all of which we rehearsed above, the JO

erred by completely discounting his efforts. 

C.

Finally, we think that the JO abused his discretion when he

failed to consider how the 90-day suspension would affect C&C

Produce. Conforti operates a wholesale produce dealership.

Because his customers, primarily restaurants, require daily

service, even a 30-day suspension is likely to have devastating

financial consequences. ABL Produce, 25 F.3d at 647; see also

Capital Produce Co. v. U.S., 930 F.2d 1077, 1081 (5th Cir. 1991)

("The 45-day suspension may destroy or seriously hamper [the

produce company's] relationships with its customers, who depend

upon daily services"). We think that there is every chance that

suspending his license for 90 days will drive Conforti, a man with

a previously spotless record, out of the produce business

altogether. 

V.

For the reasons adduced, we affirm the decision of the

Secretary of Agriculture finding that Conforti violated PACA's

employment restrictions. We find, however, that the facts in the

case do not justify the sanction imposed. In light of Conforti's

exemplary record, his diligent efforts to obtain a bond, and Cali's

limited participation in Royal Fruit, we reverse the JO's sanction

and reinstate the ALJ's decision suspending Conforti's PACA license

for 30 days. 

A true copy.

Attest:

 CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.