Opinion ID: 546948
Heading Depth: 2
Heading Rank: 2

Heading: Justification in Fact

Text: 20 Because Ferguson does not challenge on appeal the findings of the judicial officer, we do not reverse the conclusion that Ferguson violated the Act. Had Ferguson challenged it, we very likely would have reversed the finding that Ferguson acted as a market agency. There is very little probative evidence to that effect. Regardless of whether Ferguson was acting as a market agency, however, we conclude that the six-month suspension is too severe. 21 The judicial officer found that Ferguson had violated 7 U.S.C. Sec. 213(a) because his billing practices constituted an unfair ... or deceptive practice. Specifically, the judicial officer found that Ferguson was not acting as a dealer in the transactions at issue, and that, therefore, he could not charge both a dealer markup and a commission. The finding that Ferguson was not acting as a dealer is based on the judicial officer's contention that the mere placing of the word commission on the invoice insured that Ferguson acted not as a dealer, but as a market agency. In the words of the A.L.J.'s finding, Ferguson undertook to supply his customers with cattle for which he charged a commission. By statutory definition, he thereby became a 'market agency.'  7 In re Ferguson, slip op. at 8. Or, as the judicial officer put it: Under the controlling definitions set forth in the Act, a person subject to the Act who buys or sells livestock is either a market agency or a dealer--a market agency if ... he charges a commission, a dealer if he does not. Id. at 17. Separately itemizing a commission, which Ferguson claims was paid to others, made him, according to the judicial officer, a market agency. 22 We think this analysis is flawed. Simply citing the statutory definition of market agency does not prove whether Ferguson acted as a market agency in these sales. That a market agency is any person who buys and sells on a commission basis, 7 U.S.C. Sec. 201(c)(1), does not mean that the appearance of the word commission on an invoice is the equivalent of selling on a commission basis. The definition merely raises the question to be answered: was Ferguson, in fact, selling to his customers in these transactions on a commission basis? The testimony of D'Agostino, the Department of Agriculture's own expert witness on sanctions, reflects the error in the judicial officer's analysis. When asked whether Ferguson had violated the Act in a particular transaction, D'Agostino pointed out the distinction between being an agency in fact, and merely writing the word commission on the invoice. 23 Q: Now, that is the invoice to Mr. Elser. Would there be any violation if Jeff Ferguson sold cattle to John Elser and on that invoice he only put down one thing, and that is $33,643? 24 A: And that's all, no price, nothing else? 25 Q: That's all. Just the dollar amount, the bottom line. 26 A: I guess I--I couldn't say for sure whether there would be a violation or not, because I wouldn't know what the nature of the agreement was between Mr. Ferguson and Mr. Elser. 27 Transcript of Hearing at 353 (emphasis added). Whatever Ferguson's invoicing policies, we think that Ferguson was or was not a dealer as a result of the facts surrounding the transaction. As D'Agostino's testimony suggests, we should look beyond the invoice, and inquire about the nature of the business relationship. 28 This fact-based inquiry, left open to us by Glover Livestock, points up the distinction between a dealer who maladroitly states the calculation of his profit margin, and one who, acting as a market agency, fraudulently overcharges his principal. That Ferguson wrote the word commission on the invoice does not mean that either he or his customers understood that Ferguson was acting as a market agency. Thus, while Ferguson's invoicing may be a violation of the act, 8 if unintentional, the violation should not warrant the same sanction as if Ferguson had deliberately misled his principal. Granted, the Supreme Court said in Glover Livestock that nothing in 7 U.S.C. Sec. 204 authorizing suspensions confines its application to cases of 'intentional and flagrant conduct.'  Glover Livestock, 411 U.S. at 187, 93 S.Ct. at 1458. But to say that a violation need not be intentional to warrant a suspension is not to say that all unintentional violations should be punished with a suspension. And Glover Livestock certainly does not say that intention is irrelevant as to whether a suspension is for six days, six months or six years. Thus, the distinction between intentional and unintentional conduct is absolutely relevant to the severity of the sanction. 29 We must, therefore, examine the record to determine whether Ferguson was in fact acting as a market-agency, and whether he deliberately led his customers to believe that the only fee he was charging them was a commission. The A.L.J. made two relevant findings of fact. The A.L.J. found that Ferguson purchased livestock for various customers on a commission basis and led them to believe that his invoices to them consisted of the actual purchase prices plus the agreed buying commissions. In re Ferguson, slip op. at 3. The A.L.J. also found that Ferguson's customers testified that the transactions were presented to them as agency transactions in which respondent's only profit was to be the agreed commission. Id. at 5. These findings suggest that Ferguson and his customers had agreed that Ferguson would act as their agent. Based on these findings, the judicial officer was able to refer to the testimony of complainant's witnesses that respondent told them he was charging them a commission in the transactions. Id. at 24. We think that these findings overstate and mischaracterize the evidence. To the contrary, we think that the evidence falls far short of proving, even under a preponderance standard, that Ferguson told [his customers] he was charging them a commission in the transactions. 30 None of Ferguson's customers who appeared at the hearing testified that Ferguson said any such thing. Jack Montgomery testified that he had transacted both dealer and agency sales with Ferguson, transcript of hearing at 98, but he was not specific about their agreement in the particular transaction presented at trial. Instead, Montgomery merely related that the transactions were arranged either way. 31 A: Well, Jeff would describe the quality of cattle he had for sale and what the price was and what he thought he could procure them for, and I would either agree or disagree. 32 Q: Did you have the--did he have the cattle at that time? He had it bought or he had seen the cattle out in the field? 33 A: I would--I would assume could be either case. I mean, some cases he would check the cattle. Some cases he would have the cattle. 34 Id. at 100. Montgomery's only testimony specific to the transaction at issue was that, from the invoice, he would expect that Ferguson's only fee was a commission, and that the invoice price was what Ferguson paid. Id. at 101. But as to the nature of the particular transaction, Montgomery was ambiguous. When asked whether he would have preferred to buy the cattle at the same price Ferguson paid for them, Montgomery answered: If it was an agency transaction, yes. Id. When asked directly whether Ferguson had made a direct representation to you that that's all he was getting, i.e., a commission, Montgomery replied: Like I said, it was either a net or dealer transaction to me or it was an agent or commission, and that's the way I understood it. Id. at 107. Montgomery simply did not testify, in the judicial officer's characterization, that Ferguson told [him] that he was charging [him] a commission. 35 Larry Graham testified that he had been involved in both types of transactions with Ferguson, id. at 112, and that in the transaction in question, he did not recall whether I called Jeff or whether Jeff had called me, but I told him the weight range I wanted on cattle and price that I wanted to buy them for. Id. at 110. Graham's testimony, however, does not indicate whether Ferguson eventually sold him cattle Ferguson already owned. Indeed, Graham's testimony indicates that he concluded that the transaction in question was an agency transaction only because of the invoice, id. at 114, and not because Ferguson had told him so. 36 Paul Harrington explained his dealings with Ferguson as follows: 37 Q: Okay. And would he quote you a straight price that the cattle were to be, or did he--did you give him a top limit to obtain the cattle, plus--did he mention a commission? 38 A: It just depended on the cattle. It varied. 39 Id. at 120. When asked whether he remembered the particular transaction in question, Harrington said he did not. Id. at 121. 40 John Elser also testified that he had done both types of transactions with Ferguson, id. at 137, but that he couldn't remember the particular transaction involved. Id. at 139. 41 Q: Now, do I understand it that you said that you didn't remember the specific terms of these transactions? 42 A: No, I don't really. It's too many. 43 Q: You don't recall who called who and who said what to who? 44 A: No, not on these specific ones. 45 Id. at 142. Elser could testify only that, after the fact, looking at the invoice, he would think that the transaction was an agency one. But he also testified that he probably knew that Ferguson had purchased the cattle five or six days before he sold them to Elser. 46 Q: Did you realize that most of the cattle had been bought five or six days before that by Jeff in South Dakota? 47 A: I know at times he had bought cattle at an auction, and he had a yard up north of Lake Park. Sometimes he would drop them off there and try to sell them to me later. 48 Q: And it appears, doesn't it, that this--in this transaction some of the cattle were owned by Jeff for five days and other cattle for six days prior to the time you bought them? 49 A: I probably didn't know the exact dates, but I probably knew he had them. 50 Id. at 144-45. 51 Warren Feldick testified that he, too, had done both types of transactions with Ferguson and that their agreements were pretty loose. 52 Q: Did he also ever offer to purchase cattle on your behalf in which he would charge a commission? 53 A: When we first started, there was--there was related to that and yet the affidavit that I signed here, there is a little question that I said he should buy under those conditions with the commission, but it's a little misleading, because if that would change, I would tell him, Okay. If you need more, you have to, because there are--sometimes there's other buyers--when they have to travel a long ways, there could be extra commissions there; so I've got an open mind to that. 54 Id. at 175-76. Feldick's testimony also confirmed Ferguson's claim that the commission listed on the invoice was paid to someone else. Feldick said that, because the separate commission on the invoice confused him, he checked into it. 55 I also made a call myself to one of my buyers, one I haven't seen him since, and I think it was because he offered that--I got my name--that he gave my name to Jeff and--which is a lot of time a practice that they demand--when you give somebody else a name, they should have a little piece of the pie. 56 Id. at 179-80. In no way did Feldick indicate that Ferguson had intentionally misled him. 57 Indeed, nothing in the record indicates that the Packers and Stockyards Administration undertook its investigation of Ferguson because of complaints from his customers. At trial, Ferguson's customers all said they were pleased with the quality of Ferguson's cattle, and, of those asked, most were still doing business with him. Contrary to the findings of the A.L.J. and the characterizations of the judicial officer, we think that the testimony of Ferguson's customers failed to prove that Ferguson intentionally misled his customers. The only fair conclusion to be drawn from the testimony is that, after the fact, when the customers looked at the invoice, they thought that it indicated an agency transaction. This proves only that the invoice was misleading. It most decidedly does not prove that Ferguson's actions resulted ... from his deliberate and calculating effort to obtain every business advantage. In re Ferguson, slip op. at 10. 58 Moreover, several other facts in the record support Ferguson's claim that he acted as a dealer in these transactions. First, Ferguson claims that he held title to the cattle before he sold them--that he bought them as a dealer, and then sought a buyer. He did not buy them for sale to a specific customer. The only evidence in the record on title came from Ferguson, and was not mentioned by the A.L.J. or the judicial officer. Ferguson testified, for example, that he purchased the cattle he sold to Harold Christensen at an auction in Miller, South Dakota, without any direction from Christensen. Only after the purchase did Ferguson contact Christensen, and when the cattle were delivered, Christensen thought he had purchased the steers cheap. Transcript of Hearing at 260. Ferguson also testified that he sold cattle to Hummel Farms in Spirit Lake that had been purchased on separate occasions in Iowa and in South Dakota. Id. at 261. The invoice for sale to Hummel Farms is dated April 29, 1985, complainant's exhibit 7, at 8, while Ferguson wrote the checks for their purchase on April 23, 25 and 29. Id. at 5, 7, 3. Similarly, cattle sold to Larry Graham on May 9 were paid for on May 8 and 9. Complainant's Exhibit 9, at 4, 6. Moreover, of the cattle bought on the 9th, only some were sold to Graham. Id. at 6-8. Ferguson testified that while he knew Graham was looking for cattle, he called him only after he purchased the cattle. And, in the sale to John Elser on May 20, 1985, Ferguson took title to the cattle on May 14. Complainant's Exhibit 11, at 3, 5. See also Transcript of Hearing at 263-64. 9 59 Second, Ferguson made several adjustments in the price of the cattle, which he arguably would not have done, and would not have been required to do, were he acting as a market-agency. Paul Harrington testified that Ferguson reduced the price on an order of cattle when he was not happy with the quality. Transcript of Hearing at 123-24. Floyd Swanson testified that Ferguson gave him a discount on an order of heifers that were larger than Swanson wanted. Id. at 162. Warren Feldick testified that when a steer died during a snowstorm while being trucked to his farm, Ferguson stood the loss on the steer. Id. at 189-90. And Ferguson testified that he made an adjustment on cattle sold to Dean Hummel. Id. at 261. 60 Finally, the record is silent as to why the Packers and Stockyards Administration audited Ferguson. As indicated, Ferguson's customers apparently did not complain about these transactions. Indeed, as we have also indicated, all who testified said that they were pleased and satisfied with the quality of cattle they got from Ferguson. Those who were asked indicated that they had not quit buying from Ferguson because of the complaint filed by the Packers and Stockyards Administration. Id. at 102 (Jack Montgomery; got excellent cattle; had not bought that fall, but had last year); id. at 114-15 (Larry Graham); id. at 122-23 (Paul Harrington; got quality cattle); id. at 140-41 (John Elser); id. at 150-51 (Ron Johannesen); id. at 161 (Floyd Swanson; satisfied with cattle; no longer buying from Ferguson because no longer feeding cattle); id. at 185-86 (Norman Feldick; happy with quality; would buy from Ferguson in the future). 61 We think this testimony is significant. Many of the customers testified that they closely monitored cattle prices. Larry Graham testified that at the time of the purchase in question, he checked cattle prices two or three times a day. Id. at 116-17. Jack Montgomery said that he followed cattle prices daily through the Wall Street Journal and the Des Moines Register. Id. at 104-05. These were sophisticated cattle buyers, yet apparently none complained. Were Ferguson's actions as flagrant and serious as the judicial officer suggests, we are hard-pressed to understand how these seasoned cattle buyers could think they had purchased the cattle at a fair price. 62 While none of these factors is conclusive, and while together they do not prove that Ferguson's invoicing in these transactions was not misleading, we think that all are solid evidence that the six-month suspension is too severe. In Western States, we considered the same factors: the invoices showed that Western States had bought and paid for all the cattle, thus taking title; Western States made adjustment to its customers, an act inconsistent ... with the role of an agent; and Western States' customers never complained. Western States, 880 F.2d at 90-91. Thus, this court found that there was not substantial evidence that Western States acted as a market-agency, and thus that the penalty imposed is clearly too severe. Id. at 91. 10 63 Our conclusion is not based upon but is strengthened by the fact that the six-month suspension would likely put Ferguson out of business. Ferguson testified that his monthly debt obligations are heavy, transcript of hearing at 280-85, that his wife is in school, id. at 287-88, and that he could not meet his monthly obligations under a six-month suspension. Id. at 288, 371. When asked whether he could resume his cattle operations after the suspension, Ferguson replied that he would not. Id. at 373. On the facts of this case, we see no reason to put Ferguson out of business. 11