Court Opinion

ID: 49984
Source: CourtListenerOpinion
Date Created: 2010-04-26 00:42:14+00
Date Added: 2024-06-11T17:18:44.695620
License: Public Domain

[DO NOT PUBLISH]

             IN THE UNITED STATES COURT OF APPEALS
                                                                 FILED
                    FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
                      ________________________ ELEVENTH CIRCUIT
                                                               AUG 15, 2006
                              No. 06-11609                   THOMAS K. KAHN
                          Non-Argument Calendar                  CLERK
                        ________________________

                    Agency No. 04-0003-PACA-APP

JAMES E. THAMES, JR.,

                                                                    Petitioner,

                                  versus

U.S. DEPARTMENT OF AGRICULTURE,

                                                                  Respondent.

                        ________________________

                  Petition for Review of a Decision of the
                         Department of Agriculture
                       _________________________

                            (August 15, 2006)

Before BIRCH, BLACK and BARKETT, Circuit Judges.

PER CURIAM:
        James E. Thames, Jr., petitions for review of the final decision of the

Secretary of Agriculture, acting through a Department of Agriculture Judicial

Officer (“JO”), determining that Thames was “responsibly connected” with John

Manning Company, Inc., (“John Manning”) at a time during which that company

violated section 2(4) of the Perishable Agricultural Commodities Act (“PACA”), 7

U.S.C. § 499b(4), thereby subjecting him to licensing and employment restrictions

under the PACA. See 7 U.S.C. § 499h. Because we find that there is substantial

evidence in the record to support the JO’s determination, the petition is DENIED.

                                  I. BACKGROUND

        Thames began working in the produce packing industry in 1963. He joined

John Manning, a tomato re-packing plant, in 1991, at which point he, George

Fuller, Jr., and Jon Fuller each owned 31 percent of the stock and George Fuller,

Sr., one of the founders, owned 7 percent. ROA-Tab 11, ¶ 1. Thames and the

Fullers also constituted the board of directors of John Manning at that time.

Thames held the position of vice president, ran the tomato-repacking line,

purchased produce, and was responsible for hiring and firing those working on the

line.

        In 1999, the board decided to bring Steve McCue into the company. George

Fuller, Sr., sold his 7 percent to McCue, and Thames and the other Fullers sold

                                            2
enough of their stock to make McCue, Thames and the younger Fullers equal one-

fourth owners. Id. Tab 11, ¶ 2. McCue was also made president of John Manning.

      After a year, with the business going well, McCue told the other board

members that he would stay with John Manning only if he were made a majority

stockholder in the business. On 27 August 2001, Thames and the younger Fullers

sold McCue sufficient stock, at one dollar per share, to make him an owner of 51

percent while they shared ownership of the remaining 49 percent. Id. Tab A at 17-

18. Thames continued to serve as vice president and owned 16.2 percent of the

corporate shares of John Manning. Id. Tab 7.

      John Manning’s by-laws provide that “[t]he holders of a majority of the

stock issued and outstanding . . . shall constitute a quorum at all meetings of the

shareholders for the transaction of business” and that “the affirmative vote of the

majority of the shares represented at the meeting and entitled to vote on the subject

matter shall be the act of the shareholders.” Id. Tab 4, §§ 2.5, 2.7. The by-laws

also provide that “the property and business of the corporation shall be managed by

its Board of Directors,” which, as elected by the shareholders, is to “consist of not

less than three nor more than five members.” Id. Tab 4, §§ 3.1, 3.2; see id. Tab 4,

§ 2.2. Finally, “[a] majority of the members of the Board shall be necessary to

constitute a quorum and a matter may be carried by a majority within the quorum.

                                           3
The act of a majority of the directors at any meeting at which there is a quorum

shall be the act of the Board of Directors.” Id. Tab 4, § 4.5.

      As for corporate officers, the by-laws provide that the president “shall have

general and active management of the corporation, and shall see that all orders and

resolutions of the Board are carried into effect.” Id. Tab 4, § 5.4(a). If the

President fails to act in accordance with this duty, the Vice President “shall have

all the powers of the President, and shall perform such duties as shall from time to

time be imposed upon him by the Board of Directors.” Id. § 5.5. Finally, “[a]ll

checks and drafts shall be signed in such a manner as the Board of Directors may

from time to time determine.” Id. Tab 4, § 12.1.

      Thames testified that, after McCue became majority shareholder, Thames

continued to run the tomato processing line and to manage his employees, as he

had previously done, but that he was no longer involved in purchasing produce.

He explained that he was not included in any meetings with the accountant McCue

hired nor did he have any check-signing authority. Id. Tab A at 20-22. Thames

was paid $1000 a week for his work. Id. Tab A at 27. He was also entitled to

receive a portion of any retained earnings in proportion to the stock he held.

Thames worked in this capacity until John Manning closed its doors. Throughout

this period, he also continued to sit on the board of directors along with McCue

                                           4
and the younger Fullers. In that capacity, Thames signed two guarantees for loans

on behalf of John Manning, one for $100,000 in September 1999 and one for

$250,000 in December 2000. Id. Tab A at 59. He also signed a lease for new

expanded headquarters. Throughout this period, Thames attended board meetings

at which John Manning’s financial concerns were discussed.

      At the meeting on 24 April 2002, the board discussed the corporation’s

precarious financial situation, which had been made evident by its failure to pay

monthly group health insurance premiums, the discontinuation of corporate cell

phone service, its failure to pay the Blue Book bill, and trouble paying produce

suppliers. At that meeting, McCue sought and was granted permission by the

younger Fullers to ask their father for a loan to stave off the bankruptcy of John

Manning.

      At a follow-up meeting held five days later, the board discussed obtaining a

loan for $200,000 to be secured by a guarantee signed by the directors. Id. Tab 15,

¶ 6. The younger Fullers refused to sign the guarantee without first being provided

certain financial information. On 3 May 2002, the board met for a third time and

McCue distributed a 2001 year-end report showing a loss of $140,805 for 2001 and

a $32,598 loss for the first quarter fo 2002. Id. Tab 16, ¶ 3. The board members

refused to assist with an infusion of personal cash and John Manning closed its

                                          5
doors that August. Its PACA license was terminated on 5 June 2003, for failure to

pay the annual renewal fee.

       In November 2003, the Chief of the PACA Branch, Fruit and Vegetable

Programs, Agricultural Marketing Service, United States Department of

Agriculture, determined that Thames was responsibly connected with John

Manning at the time it violated the PACA by failing to make full and prompt

payment for certain lots of perishable agricultural commodities. Thames filed a

petition seeking reversal of this determination. In April 2004, an Administrative

Law Judge (“ALJ”) consolidated his case with those of the two younger Fullers

and conducted a hearing in Atlanta in March 2005. In October, the ALJ issued a

decision and order finding that all three were responsibly connected to John

Manning at the time of the violations. Thames then sought review of that decision.

The JO, acting for the Secretary of Agriculture, adopted the ALJ’s conclusions and

found that Thames had failed to prove by a preponderance of the evidence that he

was only nominally an officer, director, or shareholder of John Manning. Thus, the

final decision of the Secretary was that Thames was responsibly connected to John

Manning for purposes of the PACA licensing and employment restrictions.

Thames has filed a timely petition for our review, virtually repeating the arguments

he made before the JO.

                                         6
                                  II. DISCUSSION

      With an aim to prevent unfair business practices and promote financial

responsibility in the interstate commerce of the shipping and handling of perishable

agricultural commodities, the PACA requires that brokers and dealers be licensed

by the Secretary of Agriculture and that licensees refrain from unfair business

conduct. 7 U.S.C. §§ 499b(4), 499c-499d; see Bama Tomato Co. v. USDA, 112

F.3d 1542, 1545 (11th Cir. 1997). To promote compliance, the PACA authorizes

the Secretary to revoke or suspend the license of a licensee who fails to “make full

payment promptly” for perishable shipments and to restrict employment within the

industry of “any person who is or has been responsibly connected with” such a

violator. 7 U.S.C. §§ 499b(4), 499h(b).

      “We uphold a USDA decision under the PACA unless we find the decision

to be unconstitutional, arbitrary, capricious, an abuse of discretion, or in excess of

statutory authority.” Bama Tomato Co., 112 F.3d at 1546 (citing 5 U.S.C. §

706(2)). We review factual findings, such as the determination that a person is

“responsibly connected” with a violating licensee, under the substantial evidence

test. Id. Under this test, an agency determination must be supported by the record

in the form of “such relevant evidence as a reasonable mind might accept as

adequate to support a conclusion.” Consolidated Edison Co. v. NLRB, 305 U.S.

                                           7
197, 229, 59 S. Ct. 206, 217 (1938). Under “this deferential standard of review[,] .

. . as long as the conclusion is reasonable, we defer to the agency’s findings of fact

even if we could have justifiably found differently.” Kelliher v. Veneman, 313

F.3d 1270, 1277 (11th Cir. 2002).

       Under the PACA, a person is “responsibly connected” if he or she is

“affiliated or connected with a commission merchant, dealer, or broker as . . . [an]

officer, director, or holder of more than 10 per centum of the outstanding stock of a

corporation or association.” 7 U.S.C. § 499a(b)(9). The presumption that a person

so situated is responsibly connected may be rebutted, however, if

       the person demonstrates by a preponderance of the evidence that the
       person was not actively involved in the activities resulting in a
       violation of [the PACA] and that the person either was only nominally
       a partner, officer, director, or shareholder of a violating licensee or
       entity subject to license or was not an owner of a violating licensee or
       entity subject to license which was the alter ego of its owners.

Id. (emphasis added).1

       With regard to the second part of this test, Thames argues that, because the

by-laws of John Manning gave McCue, as president, director, and majority

shareholder, the unqualified authority to elect and remove directors or corporate

officers, he occupied his positions as vice-president and director only at McCue’s

       1
        In this case, because he owned 16.2 percent of the outstanding John Manning stock at
the time of the violations, the latter option, regarding ownership of a violating licensee, is not
available to Thames.

                                                  8
whim, and was thus only a nominal officer and director. Courts interpreting this

statute, however, have held that to be considered a nominal officer or director, a

person must show that he lacks any “actual, significant nexus with the violating

company,” and “therefore, neither knew nor should have known of the company’s

misdeeds.” Hart v. Department of Agriculture, 112 F.3d 1228, 1231 (D.C. Cir.

1997) (quotations and punctuation omitted).

      Here, in light of his lengthy experience working in the produce repacking

industry in general, and his more than decade-long experience as an officer and

director at John Manning, Thames had sufficient background to understand the

import of the corporation’s financial predicament. As a continuing director, under

sections 3.1 and 4.5 of the by-laws, Thames had a vote equal to McCue’s as to any

matter involving the management of John Manning’s property and business.

Thames attended board meetings during the period of the violations at which he

could have voted as part of a majority, along with the Fullers, to address John

Manning’s financial problems.

      Although Thames asserts that courts have found that attendance at board

meetings, the ability to vote at a meeting, and knowledge of the fact that producers

were going unpaid do not necessarily preclude nominal director or officer status,

each of the cases he cites is easily distinguishable from the facts of his case. First,

                                            9
in Minotto, the director at issue was a clerical employee, with no prior experience

in the produce industry and no knowledge of the activities that led to the violating

transactions, who had been put in the position to ensure a quorum at board

meetings. Minotto v. USDA, 711 F.2d 406, 407-09 (D.C. Cir. 1983). In Bell, the

person in question was made president of the corporation to mediate disputes

between the two owners, but “never participated in the formal decisionmaking

structures of the corporation.” Bell v. Dep’t of Agric., 39 F.3d 1199, 1204 (D.C.

Cir. 1994). Yet another corporation appointed a production line supervisor as vice-

president to satisfy a statutory minimum number of officers, but gave him no

decisionmaking authority in that role. Quinn v. Butz, 510 F.2d 743, 747 (D.C. Cir.

1975). Finally, a further wholesale produce business made the manager of its

vegetable department titular president, apparently without his understanding that it

had done so, upon his investing $40,000 in the company, but he never attended any

corporate meetings. Maldonado v. Dep’t of Agric., 154 F.3d 1086, 1087 (9th Cir.

1998).

         Thames, on the other hand, had plenty of background in the produce

industry and had long sat on the board of John Manning out of his own

entrepreneurial interests rather than for the administrative convenience of the

corporation. Further, in addition to attending board meetings,Thames continued to

                                          10
run the processing line, to be paid his salary of $1000 per week, and to have the

right to receive a portion of retained earnings. Finally, although McCue could

have removed Thames from the board of directors, he never did so. Accordingly,

we conclude that there is sufficient evidence in the record to support the conclusion

of the JO, on behalf of the Secretary of Agriculture, that, at the time of the PACA

violations, Thames “had an actual, significant nexus with” John Manning and

possessed oversight and governance powers that “he failed to use in an effort to

prevent [John Manning’s] violations of the prompt payment provision of the

PACA,” and thereby failed to establish that he was only nominally an officer or

director of John Manning for purposes of the PACA’s licensing and employment

restrictions.2 Administrative Papers, Decision and Order of the Judicial Officer for

the Secretary of Agriculture at 20-21, 26 (Jan. 24, 2006.).

                                    III. CONCLUSION

       Thames petitions for review of the final determination of the Secretary of

Agriculture that he was responsibly connected with John Manning when it violated

the PACA. We find that there is substantial evidence in the record to support the

JO’s determination that Thames failed to demonstrate he was only a nominal

       2
         Because the record supports the conclusion that Thames was not a nominal officer or
director, we do not reach the issue of whether he was “actively involved” in the activities
resulting in violations of the PACA.

                                              11
director and officer of John Manning at the time of the violations and was thus

responsibly connected to the company for purposes of licensing and employment

restrictions. Accordingly, the petition is DENIED.

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