Opinion ID: 325002
Heading Depth: 1
Heading Rank: 5

Heading: the interpretation contention

Text: 20 We now turn to the remaining question Quinn tenders for decision: whether Section 1(9) of the Act 52 requires inexorably a holding that, as nominal vice-president of DeVita Fruit Company, Quinn was 'responsible connected' with the company, thereby foreclosing all opportunity to prove that he was not. We answer that question in the negative on each of two independent bases. Interpreting Section 1(9) conformably with accepted canons of statutory construction in light of its legislative history, we conclude that the section's formula for ascertaining responsible connection is rebuttable rather than absolute. We further conclude that in the current state of the record it cannot confidently be said that DeVita Fruit Company was a 'corporation' within the meaning of Section 1(9), and so an organization to which the rule of that section applies.
21 The Act limits licensees in the employment of any person then or theretofore 'responsibly connected' with another (a) whose license is revoked or currently suspended by the Secretary, or (b) who has been found to have committed any flagrant or repeated violation of the fair-practice provisions, or (c) against whom there is an unsatisfied reparation award issued within two years. 53 The Secretary revoked the license of DeVita Fruit Company for flagrant and repeated fair-practice violations after the license had been statutorily suspended for nonpayment of a reparation award. 54 Section 1(9) of the Act then became relevant by reason of its specification that '(t)he term 'responsibly connected' means affiliated or connected with a commission merchant, dealer, or broker as . . . officer . . . of a corporation. . . .' 55 The Secretary's ruling that Quinn is ineligible, at least temporarily, for reemployment in the industry is predicated flatly and exclusively on this provision. 22 Quinn contends that Section 1(9) is but a designation of categories of persons who prima facie are 'responsibly connected' with a licensee, and who have the burden of proving, but also the prerogative of attempting to prove, a claim to the contrary. On the other hand, appellees argue, as had been administratively considered, 56 that Section 1(9) establishes a conclusive rule, barring anyone within its categories from undertaking to demonstrate that he was not 'responsibly connected' with the offending licensee. So it was that the Secretary proclaimed a one-year moratorium on Quinn's employability on the ground that Quinn was responsibly connected with DeVita Fruit Company when it transgressed the Act. 57 Indulging Section 1(9) an irreversible effect, the Secretary refused Quinn's request, repeated throughout the administrative proceeding, 58 for an opportunity to prove that actually he bore no such relationship to the company. The sole reason cited for the refusal was the view that Quinn's contention manifested a 'primary interest . . . to obviate the provisions of the Act which affect officers of an organization found to have violated the Act, or collateral consequences of violations found.' 59 23 If the facts are as Quinn represented them during the proceeding, it could hardly be urged that he ever was 'responsibly' affiliated with the company in any true sense of the word. In an uncontroverted affidavit submitted in support of his application for an evidentiary hearing, Quinn acknowledged that he allowed John DeVita to use his name as vice-president of the company to enable incorporation under Ohio law, but swore that never was he assigned duties or paid additional salary as vice-president; that never did he perform services as vice-president, or even attend meetings of the board of directors; and that indeed, after the corporation was formed, never was his status as vice-president even discussed. 24 Never, Quinn further avowed, did he have anything to do with policy or business decisions, or have access to the company's records, or have any knowledge of the company's financial difficulties. Other unopposed affidavits stated that Quinn's occupancy of the vice-presidency of DeVita Fruit Company was purely nominal, and that John DeVita, as sole stockholder, completely controlled the company and effectively exercised the ultimate decision-making power in all aspects of company operations. 25 These circumstances, if they existed, would demonstrate not only that Quinn did not to any extent participate in the management of the 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. They would also generate at least a doubt as to whether this one-man corporation dominated by its sole stockholder was a 'corporation' within the contemplation of Section 1(9) to which the rule prescribed by that section could apply. The Secretary did not consider either of these aspects of the case, and the twin questions are whether he erred in not doing so.
26 The statutory language leaves open the question whether Section 1(9)'s definition of 'responsible(e) connect(ion)' is rebuttable or irrebuttable, and the Secretary's view that it is irrefutable ignores well settled canons of statutory construction. The Secretary's interpretation obviously rests upon a literal reading of the language, a technique which well may stifle true legislative intent. 60 'It is a 'familiar rule, the Supreme Court has stated, that a thing may be within the letter of the statute and yet not within the statute, because not within its spirit nor within the intention of its makers. 61 Moreover, a construction of a statute leading to unjust or absurd consequences should be avoided. 62 And 'even when the plain meaning (of statutory language) did not produce absurd results but merely an unreasonable one 'plainly at variance with the policy of the legislation as a whole' (the Court) has followed that purpose, rather than the literal words.' 63 27 Lacking enlightenment from the bare language of Section 1(9), we look to its legislative history, and there we find nothing showing that Congress opted for an incontestable formula for ascertaining 'responsibl(e) connect(ion)' through corporate officership. As originally enacted in 1930, Section 8 empowered the Secretary to suspend or revoke the authority of a licensee to do business under the Act, but contained no provision enabling restrictions on future employment of those who were violators in an employee capacity. 64 Thus, for example, a violator could circumvent the Act by the subterfuge of acting as an 'employee' of a dummy corporation newly licensed. 65 By enactment of what is now Section 8(b) in 1934 66 and amendment thereof in 1956, 67 the Secretary was authorized to revoke a license when the licensee, after notice from the Secretary, continued to employ in a 'responsible position' one whose own license had been revoked or suspended or one who had been 'responsibly connected' with a licensee who incurred revocation or suspension. 68 These charges, however, left to the Secretary the task of ascertaining what in the way of new employment constituted a 'responsible position,' and who in the way of old employment had been 'responsibly connected' with a violating licensee. 28 It was to ameliorate the problems incidental to such determinations that Congress in 1962 again amended Section 8(b). 69 As Secretary Freeman commented, a major purpose of the bill proposing the amendments was 29 to improve and clarify the provisions relating to relicensing or employment of persons who had violated the act or had been affiliated with such persons; 70 30 as he pointed out, 31 frequent attempts are made to circumvent the law following revocation or suspension of a license. Effective enforcement of the act, therefore, rests on having comprehensive, clear, and equitable provisions relating to relicensing and employment which fully cover the situations encountered in this area in the fruit and vegetable industry. 71 32 Additionally, the hearings on the bill which eventually produced the 1962 amendments disclosed difficulty in securing evidence that an individual had a 'responsible position' with a new employer-licensee, 72 and the focus on the troubles brewed by 'responsible position' with a new employer was much greater than on any germinated by 'responsibl(e) connect(ion)' with a former employer. As the House Committee on Agriculture explained, 33 (a)ny licensee hiring a person without the approval of the Secretary in violation of this provision, after notice and opportunity for hearing, may have his license suspended or revoked. At present the act applies only to the employment of a person in a responsible position. This has caused serious difficulties due to the problem of delineating what constitutes a responsible position under all circumstances and the difficulty of ascertaining the true nature of the employee's relationship with the licensee. Under the present provisions of the act the restrictions against employment are directed specifically to persons whose licenses had been revoked or suspended and persons responsibly connected therewith. The bill extends such restrictions to persons whose licenses could have been revoked or suspended if they had had active licenses. As amended, section 8(b) would prohibit employment of persons covered by it unless such employment is approved by the Secretary; whereas at present it prohibits such employment only after notice by the Secretary. 73 34 Simultaneously with the 1962 amendment of Section 8(b), Congress added the present Section 1(9) as a new provision of the Act. The explanation for this addition was sparse. When the Committee reported the bill out favorably, it stated merely that Section 1(9) would give the term 'responsibly connected' and others 'specific meaning, thus avoiding possible confusion as to interpretations.' 74 There is nothing to indicate that the Committee was so gravely concerned about an employee's past relations with a defaulting licensee as to intend the provision of an absolute rule on that score. 35 We do not find in this history a clear purpose to fashion what in the Secretary's view was an irrebuttable presumption of responsible connection with an organizational licensee merely from officership in the organization. Secretary Freeman did not ask for such a presumption, 75 and the House Committee on Agriculture stated as the single object of Section 1(9) the provision of a definition to unify interpretations of 'responsibly connected,' as distinguished from an effort to absolutely bar inquiry as to whether one who satisfied the definition was really 'responsibly connected' with an offending licensee. 76 What seems as likely to have been contemplated was the specification of a standard by which the caliber of licensee-connections could be ascertained, rather than a mechanical and possibly inequitable ascertainment of such a connection for all cases. If either the Secretary or the Committee had in mind the drastic effect which appellees attribute to Section 1(9), we would have expected a good deal more explication in that regard. 36 Moreover, assuming a passionate congressional concern about proof that an employee was responsibly connected, rather than a definition of when an employee was so affiliated, it does not follow that Congress settled on an irreversible presumption as the solution. Undeniably, the proof problem is eased greatly by a rule establishing prima facie a responsible connection from officership and casting upon the officer the obviously heavy burden of demonstrating satisfactorily to the Secretary that such a connection did not actually exist. Congress has frequently supplied rebuttable presumptions and inferences to meet similar difficulties of proof, 77 and there is no significant indication that Congress felt that more was needed here. 37 The injustice, 78 indeed the absurdity, 79 of irrebuttably presuming that one is responsibly connected when actually he is not is readily apparent. If those who profess to know the facts are to be believed, Quinn was an officer of DeVita Fruit Company only on paper. Undeniably, the Perishable Agricultural Commodities Act was designed to strike at persons in authority who acquiesced in wrongdoing as well as the wrongdoers themselves. 80 But by the Secretary's construction of Section 1(9), it also smites one who was not only unaware of the wrongdoing but also powerless to curb it. 81 38 We are not persuaded that Congress, in enacting Section 1(9), intended that consequence. We think that when Congress decides to impose a conclusive presumption, its purpose must be, not merely arguable, but unmistakable. Here there is an almost total lack of indicia of such a purpose in the legislative history of Section 1(9). At the same time, the Act is replete with delegations to the Secretary of duties--some, difficult duties--requiring exertion of his fact-finding and discretionary power. 82 There is ample basis for believing that in promulgating the formula set forth in Section 1(9), Congress contemplated the same administrative exercise. 39 To sum up, Congress provided, as the Secretary proposed, that once the Secretary determined that a person's license be suspended or revoked, the ensuing sanction should be prescribed by a 'clear and equitable' 83 rule that denied him any employment, for the pertinent period, rather than require a new determination of precisely which positions were closed. But for something as consequential as the initial order of suspension or revocation of license, which traditionally rests on determination of personal fault, it would take more than the bare test and skimpy history of the statute before us to establish that this consequence was intended to be visited on a basis of absolute liability, of liability without either personal fault or a realistic capacity to counteract or obviate the fault of others. 40 We hold, then, that the rule of 'responsibl(e) connect(ion)' forged by Section 1(9) is rebuttable. 84 It operates unless and until there is a proffer of proof of facts and circumstances which might reasonably lead to the conclusion that actually the connection was lacking. When, however, such a proffer is made, the opportunity of proof must be accorded, and the issue must be resolved on the evidence. Quinn made a suitable proffer, and must now be given a chance to submit his proof. 85
41 Quite apart from the considerations just discussed, there is another which demonstrates the Secretary's error in refusing to consider Quinn's proffer in connection with the determination that the statutory limitations on reemployment applied to him. The refusal rested on the theory that Quinn could not be permitted to contest the operation of Section 1(9)'s definition of an officer of a corporate violator as one responsibly connected with the corporate licensee, 86 and as such one whose reemployment was enjoined by Section 8(b). 87 We are unable to accept the Secretary's view that Section 1(9) was to be given automatic operation in the circumstances of this case. 42 To briefly recapitulate, Section 8(b) imposes restrictions on the employment of those who formerly were 'responsibly connected' with revoked or suspended licensees. 88 The restraint on Quinn did not follow any determination that he was responsibly connected with DeVita Fruit Company as a matter of fact. Indeed, the Secretary declined to consider evidence, proffered by affidavits Quinn submitted, which if believed would have demonstrated that he never had such a relationship with the company. The Secretary relied instead upon the definition of 'responsibly connected' set forth in Section 1(9), which he deemed unavoidable and incontrovertible in its effect upon Quinn. 43 Section 1(9), however, purports to attribute to Quinn a responsible connection with DeVita Fruit Company only if the company was a 'corporation' within that section's meaning, and Quinn's tender challenged the Secretary's assumption that it was. The tender included an affidavit by Charles W. Daley, an attorney who had prepared and filed the articles of incorporation converting the DeVita business from individual to corporate form, and who thereafter had served as secretary of the corporation. Daley stated that 'all decision making in this corporation was done by (John A.) DeVita who, throughout the entire corporate existence, was the sole stockholder.' More importantly, there was also the affidavit of John DeVita, who stated 'that in the conduct of his business as a corporation, affiant as shareholder, elected the directors of the corporation from year to year and that said directors as elected by affiant, elected the officers of the corporation;' and 'that all policy decisions of the corporation with reference to the company operations were made by affiant throughout and where appropriate through his Board of Directors, but affiant effectively retained the decision making power in all aspects of corporate decision making.' So a question arises as to whether the organization which DeVita individually dominated and controlled could in legal contemplation be treated only as a corporation. The further question is whether the Secretary was correct in his apparent conclusion that he lacked discretion to treat the DeVita organization in any other way. 44 A corporation is ordinarily to be viewed as a distinct entity, 89 even when it is wholly owned by a single individual. 90 This concept is, however, designed to serve normal, inoffensive uses of the corporate device, and is not to be stretched beyond its reason and policy. 91 Only recently we reminded that '(t)he courts have consistently recognized that a corporate entity must be disregarded in the interest of public convenience, fairness and equity' 92 and that 45 (i)f any general rule can be laid down, in the present state of authority, it is that a corporation can be looked upon as a legal entity as a general rule, and until sufficient reason to the contrary appears; but, when the notion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons. 93 46 This doctrine is firmly entrenched in our jurisprudence, 94 and it has been utilized in a variety of situations, 95 not the least of which are those wherein the corporation is simply the alter ego of its owners. 96 Here we speak not merely of single ownership, 97 or of deliberate adoption and use of a corporate form in order to secure its legitimate advantages, 98 but of such domination of a corporation as in reality to negate its separate personality. 99 When, at some innocent party's expense, the corporation is converted into such an instrumentality, 'the courts will not permit themselves to be blinded or deceived by mere forms or law but, regardless of fictions, will deal with the substance of the transaction involved as if the corporate agency did not exist and as the justice of the case may require.' 100 47 So, in Capital Telephone Company v. FCC, 101 we upheld an agency's treatment of separate applications by a corporation and an individual for two high-band radio channels as a single application because the individual was the sole stockholder of the corporation and controlled its operations as well as his own. 102 In Mansfield Journal Company v. FCC, 103 we sustained the agency's denial of separate applications by two newspaper companies for two radio-station licenses because the companies were wholly owned and actively controlled by one family. 104 In S.O.U.P., Inc. v. FTC, 105 we looked past a corporation to its members to ascertain eligibility to appeal in forma pauperis. 106 Many other courts for a variety of purposes have similarly disregarded the corporate fiction where its recognition would pervert the truth. 107 48 We are mindful that penetration of the corporate veil is a step to be taken cautionsly, 108 and usually it is urged by rather than against the Government, but the ultimate principle is one permitting its use to avoid injustice, and the case at bar presented a situation warranting consideration of just such a step. Quinn made a preliminary showing that John DeVita dominated and exclusively controlled DeVita Fruit Company, and that his dominion over its affairs and operations was as complete as when the business was conducted as a sole proprietorship. Quinn's showing plainly indicated, too, that acceptance of the company as a Section 1(9) corporation, and as a result the invocation against Quinn of the statutory restrictions on employment, would work a grave injustice on him. 109 Moreover, the irrationality of holding an employee 'responsibly connected' with the licensee when actually he was not is self evident. 49 We conclude that the Secretary erred in failing to consider Quinn's evidence. We have admonished that 'the fiction of a corporate entity cannot stand athwart sound regulatory practice;' 110 we have said that, on the contrary, '(t)o carry out statutory objectives, it is frequently necessary to seek out and to give weight to the identity and characteristics of the controlling officers and stockholders of a corporation.' 111 Nothing in the legislative history of the Perishable Agricultural Commodities Act suggests that the Secretary is powerless, in administrating Section 1(9), to apply a doctrine commonplace in judicial decision-making. The Act entrusts many regulatory matters to the Secretary's discretion, 112 and Section 1(9) is not so all-inclusive a definition of 'responsibl(e) connect(ion)' 113 as to negate the normal function of administrative interpretation of its terminology. 114 50 It was not necessary for Quinn to allege actual fraud in the incorporation of DeVita Fruit Company; 115 it sufficed that the corporate fiction actually visited an injustice upon him. 116 Quinn's proffer suitably challenged the operation of Section 1(9) and he is entitled to an opportunity to show that the company was not in truth a corporation within the objective which Congress contemplated. 117 If Quinn succeeds in establishing that the company is not properly to be recognized as a legal entity, it would follow that the definition of 'responsibl(e) connect(ion)' contained in Section 1(9) has no application to him. 118 51 We affirm the Secretary's action save to the extent that Quinn's evidentiary proffer was rejected. To the end that it may now be considered, we reverse the Secretary's action and remand the case to the Secretary for proceedings in harmony with this opinion. 52 So ordered.