Court Opinion

ID: 6931986
Source: CourtListenerOpinion
Date Created: 2022-07-24 00:07:38.808111+00
Date Added: 2024-06-11T16:07:13.995476
License: Public Domain

GODBOLD, Senior Circuit Judge,
dissenting:
Graham L. Cole raises, buys, sells and warehouses tobacco. This case is a consequence of his failure to maintain correct records as a tobacco dealer. The failures relate mostly to sales of more tobacco than his records showed that he had purchased, and, to a much smaller extent, to sales not reflected in his records at all. By statute, 7 U.S.C. § 1373, for his record-keeping failures Cole could be found guilty of a misdemeanor and, upon conviction, fined up to $5,000. The Secretary of Agriculture ignored these statutory penalties and charged against Cole penalties totalling $398,756.59, some 80 times greater than the maximum § 1373 fíne, based upon what the Secretary describes as a “system” or “regime” for controlling sales of tobacco by tobacco farmers in excess of quotas assigned to them. On summary judgment the district court found that the Secretary had acted beyond his statutory authority. This court reverses the summary judgment and remands the case for further consideration.
I would affirm the summary judgment. By the Agricultural Adjustment Act of 1938 Congress provided for the orderly marketing of tobacco.1 The Act directs the Secretary to promulgate regulations for its enforcement,2 and he has put in place record-keeping regulations described in the opinion of this court. Congress itself has addressed the failure of a tobacco dealer to keep and maintain correct records as required by the Secretary and has defined the consequences of such failure.
7 U.S.C. § 1373 Reports and records.
(a) Persons reporting.
*1271This subsection shall apply to warehouse-men, processors, and common carriers of [other designated commodities] or tobacco, and ... all persons engaged in the business of purchasing [other designated commodities] or tobacco from producers.... Any such person shall, from time to time on request of the Secretary, report to the Secretary such information and keep such records as the Secretary finds to be necessary to enable him to carry out the provisions of this subchapter [which includes § 1314(a) ]. Such information shall be reported and such records shall be kept in accordance with forms which the Secretary shall prescribe. For the purpose of ascertaining the correctness of any report made or record kept, or of obtaining information required to be furnished in any report, but not so furnished, the Secretary is authorized to examine such books, papers, records, accounts, correspondence, contracts, documents, and memorandum as he has reason to believe are relevant and are within the control of such person. Any such person failing to make any report or keep any record as required by this subsection or making any false report or record shall be deemed guilty of a misdemeanor and upon conviction thereof shall be subject to a fine of not more than $500; and any tobacco warehouseman or dealer who fails to report such violation by making a complete and accurate report or keeping a complete and accurate record as required by this subsection within fifteen days after notice to him of such violation shall be subject to an additional fine of $100 for each ten thousand pounds of tobacco, or fraction thereof, bought or sold by him after the date of such violation: Provided, that such fine shall not exceed $5,000....
To understand what has happened to Cole one must understand the “regime” or “system” erected by the Secretary — the phrase is his — to control sales of excess (“over-quota”) tobacco by the farmers who have produced it. The Secretary establishes a national marketing quota for each type of tobacco, which is apportioned among the states, and finally an allotment or quota is assigned to each tobacco-producing farm. 7 U.S.C. §§ 1312, 1313(a) and (b). In § 1314(a) the Act provides for a heavy penalty upon the marketing of any tobacco in excess of the marketing quota for the farm on which it is produced, to be paid by the person who acquires such tobacco from the producer. The acquiring person, who is the collector and remitter of the tax on the transaction, may recoup by deducting from the price paid to the producer an amount equivalent to the penalty.
(a) The marketing of (1) any kind of tobacco in excess .of the marketing quota for the farm on which the tobacco is produced, ... shall be subject to a penalty of 75 per centum of the average market price ... for such kind of tobacco for the immediately preceding marketing year. Such penalty shall be paid by the person who acquired such tobacco from the producer but an amount equivalent to the penalty may be deducted by the buyer from the price paid to the producer in case such tobacco is marketed by sale; or, if the tobacco is marketed by the producer through a warehouseman or other agent, such penalty shall be paid by such warehouseman or agent who may deduct an amount equivalent to the penalty from the price paid to the producer.... If any producer falsely identifies or fails to account for the disposition of any tobacco, an amount of tobacco equal to the normal yield of the number of acres harvested in excess of the farm-acreage allotment shall be deemed to have been marketed in excess of the marketing quota for the farm, and the penalty in respect thereof shall be paid and remitted by the producer....”
7 U.S.C. § 1314(a). The government may collect the penalty from the acquirer or can proceed against the producer, but it is the producer against whom the penalty is imposed.
While the statute requires the buyer, agent or warehouseman to pay the penalty, it is clear that the imposition of the penalty is on the offending producer.
U.S. v. Whittle, 287 F.2d 638, 640 (4th Cir. 1961).
*1272The penalties charged against Cole were calculated by the § 1314(a) measure, 75% of average market price.
The Secretary has adopted regulations that he contends authorize him to impose the § 1314(a) penalty against a tobacco dealer based upon his failure to keep proper records of tobacco he has “resold.”
(d) Dealer’s tobacco. The ... tobacco resales by a dealer (as shown or due to be shown on Form MQ-79), which are in excess of his total prior ... tobacco purchases (as shown or due to be shown on From MQ-79) shall be considered to be a marketing of excess tobacco and penalty thereon shall be due at the time the marketing takes place which results in the excess....
(e) Resales not reported. Any resale of tobacco which is required to be reported by a warehouseman or dealer, but which is not so reported within the time and in the manner required, shall be considered to be a marketing of excess tobacco, unless and until such warehouseman or dealer furnishes a report of such resale which is acceptable to the State executive director. The penalty thereon shall be paid by the warehouseman or dealer who fails to make the report as required.
7 C.F.R. 725.94(d), (e) (1989 ed.); 726.88(d), (e) (1989 ed.) (emphasis added).3
The action taken by the Secretary against Cole is beyond his statutory authority for several reasons.
(1) By § 1373 Congress has directly spoken to the failure of a tobacco dealer to maintain records and has assigned the consequences of that failure.
(2) The “regime” or “system” put in place by the Secretary to control sales of over-quota tobacco sweeps too broadly. The deeision by this court has not even addressed this issue.
(3) Imposition of the § 1314(a) penalty conflicts with Gold Kist, Inc. v. USDA, 741 F.2d 344 (11th Cir.1984).
(4) This court sustains the validity of regulations (d) and (e) on the ground that they merely create a rebuttable presumption that Cole has not shown to be irrational. Regulation (d), on which most of Cole’s penalty is based, contains no right to rebut, and the presumption of regulation (e) is not rational.4
******
(1) Preemption by Congress.
Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), is the controlling case in judicial review of agency action. In Chevron the Supreme Court set forth a two-step test:
When a court reviews an agency’s construction of the statute which it administers, it is confronted with two questions. First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.
*1273Id. at 842-43, 104 S.Ct. at 2781-82 (footnotes omitted). This court has ignored the first step of Chevron’s test. It assumes without discussion that Congress has authorized the Secretary to regulate the field of violations of record-keeping by dealers, or has remained silent as to it, and goes directly to the second step of whether agency action is reasonable.
It does not answer the Chevron first-level inquiry to say that the Secretary’s regulations do not penalize the failure to keep records but rather penalize a purchaser in a transaction in which he has acquired over-quota tobacco from a producer. In § 1373 Congress defined the consequence of an improper record — fines and a misdemeanor conviction. The Secretary, by regulation, has assigned different (and for Cole, catastrophic) consequences. I discuss below the validity of the presumptions on which the Secretary and this court rely. But at the first level, without reaching that inquiry, the Secretary’s regulations are beyond his authority because they intrude on both subject matter and assigned consequences that Congress has preempted.
(2) The “regime” or “system” sweeps too broadly.
Assuming that the Secretary’s “regime” does not fall at the first level of Chevron, it fails at the second level. It is unreasonable because it sweeps too broadly.
Congress has elected to regulate the marketing of over-quota tobacco through § 1314(a) and the penalties for record-keeping failure by § 1373(a). It has authorized the Secretary to promulgate regulations for enforcement of the Act. But that authority must be exercised in the light of Congress’ specific elections under § 1314(a) and § 1373(a).
The Secretary has made no effort to bring himself within, or to act consistently with, § 1373(a) but simply has ignored it. He has attempted to bring himself within § 1314(a) by regulations defining in § 1314(a) terms the events sought to be regulated and the participants in that event.
First, as to the participants: The target of regulations (d) and (e) is “a dealer.” By regulation the Secretary has defined a dealer in tobacco as “[a] person who engages to any extent in acquiring or selling tobacco in the form normally marketed by producers.” 7 C.F.R. 725.51(g). Of course, one who buys tobacco from a producer thereof is, in the language of § 1314(a), a “person who acquire[s] such tobacco from the producer,” and such an “acquirer” may be engaged, but is not necessarily engaged, in the business of buying and selling tobacco. The Secretary has chosen the dealer as the “throat” or point of contact at which the “regulatory regime” will operate to control against marketing by producers of over-quota tobacco.
Thus, the regulatory regime is designed to control against producers’ marketing in excess of quotas by ensuring that dealers will account for all purchases and remit or collect the penalty amount which is appropriate.
Gov’t.Brief, p. 8. The Secretary has the power to select the dealer as the control point. He can require the dealer to keep records, and § 1373 prescribes a penalty for the dealer’s failure to do so. But the issue before us concerns not power to select but the limits on power to impose a penalty. The act of designating the dealer as the point of contact for implementing control does not impose upon the dealer, as dealer, the obligations placed by § 1314(a) upon one who acquires from a producer. A dealer is obligated to collect and remit only if he is a § 1314(a) acquirer and then only to the extent of his acquisition.
Faced with the necessity of inferring a dealer’s status [as acquirer] in a [presumed] purchase transaction — from the dealer’s failure to keep records of a resale made at a later date — the Secretary states over and over again that the Act itself assigns to the dealer the responsibility to collect and remit the § 1314(a) penalty for over-quota tobacco. E.g., Gov’t.Brief, pp. 2, 15, 16, 22, 24, 25, 29, 33. These are misstatements. The Act assigns the responsibility to the § 1314(a) acquirer. The dealer is responsible only if, and to the extent, he is a § 1314(a) acquirer.
Second, with respect to the action or event sought to be regulated: The statutory marketing event is a producer-to-acquirer sale *1274with a penalty collected from the acquirer. The event covered by the regulations takes place upon a coalescing of two occurrences— a resale by a dealer and a failure of the dealer to keep records — neither of which is addressed by § 1314(a). These occurrences take place downstream from any producer-to-acquirer transaction, and any number of successive transactions and participants may intervene and be subject to the regulations. To bridge the gap between the § 1314(a) event and the regulated event(s) the Secretary has promulgated in (d) a presumption springing from resales exceeding recorded purchases, and in (e) a presumption springing from unreported sales, each providing that the event “shall be considered to be a marketing of excess tobacco.”
The Secretary, by applying regulations (d) and (e) — in charging the penalties to Cole, in Cole’s administrative appeals, in the district court, and in this, court — has not identified as over-quota tobacco any of the tobacco that is the subject of the penalties, nor has he identified the producer of any of the tobacco. He has not identified any producer-to-acquirer transaction participated in by Cole, or indeed any producer-to-acquirer transaction that has occurred. Nor has he brought forward evidence of whether any of the tobacco used as the basis for calculating the penalties against Cole has previously been the subject of a penalty arising from any producer-to-acquirer transaction as described in § 1314(a). His position simply is that he need not do any of these things.
The sweep of the regulatory scheme may be seen by its impact. Application of it to a dealer establishes several things:
—That some one or more unidentified producers have sold to some one or more unidentified purchasers over-quota tobacco.
—That the penalties that should have been paid on one or more of those producer-to-acquirer transactions were not paid by the purchaser(s).
—That the penalties due for any of the [presumably] over-quota tobacco have not been paid by any downstream owner of any of the tobacco.
—That some or all of the [presumably] over-quota tobacco that was the subject matter of one or more producer-to-acquirer transactions has come into the hands of the dealer and has been resold by him.
—That all tobacco resales, the dealer’s records of which do not comply with (d) or (e), are resales of over-quota tobacco that meet the foregoing conditions.
—That a recorded paper trail exists in the tobacco industry that in fact would reveal to a dealer who purchases tobacco but is not the purchaser in the underlying § 1314(a) transactions that tobacco he is acquiring is over-quota tobacco on which no penalty has been paid.
The power of the Secretary to make regulations that enforce the Act does not sweep this broadly, whether done by creation of a presumption or otherwise.5 It does not answer to say that (d) and (e) do not impose a penalty but only “supply evidence” that a dealer has engaged in a § 1314(a) transaction involving over-quota tobacco. As I discuss below, regulation (d) operates directly to create a consequence — “a penalty thereon shall be due” — and provides no right to rebut. With respect to (e), describing it as “merely evidentiary” is but a play on words. It creates a consequence — “the penalty thereon shall be paid”- — subject to a right to submit evidence that will satisfy the department. If this consequence is valid at all it is only to the extent the presumption is valid.
(3) Imposition of the § 1314(a) penalty conflicts with Gold Kist
In Gold Kist, Inc. v. USDA, 741 F.2d 344 (11th Cir.1984), we distinguished between mere administrative sanctions and penalties, civil or criminal. We held that a statute must plainly establish a penal sanction in order for an agency to have authority to impose a penalty. At issue in the case was whether the USDA had authority to impose *1275civil monetary penalties relating to marketing and handling peanuts. Under the peanut price support program in effect at the time, there were two categories of peanuts: “quota peanuts,” those produced under a quota and allotment granted the farmer under the federal peanut program, and “additional peanuts,” those grown in addition to a farmer’s allotment and quota. While there existed specific statutory authority, 7 U.S.C. § 1359(g)6, for marketing penalties relating to “quota peanuts,” similar statutory authority for marketing penalties relating to “additional peanuts” did not exist. The USDA argued that because of its general authority to regulate peanut marketing it had authority to set the conditions under which “additional peanuts” were handled and that this authority necessarily encompassed the power to assess monetary penalties.
We held: (1) that an agency may impose administrative sanctions not specifically imposed by statute so long as the penalty is reasonably related to the purposes of the enabling legislation; and (2) that an agency’s power to impose penalties and penal statutes is to be strictly construed; and (3) that one is not to be subjected to a penalty unless the words of the statute plainly impose it. 741 F.2d at 348. We concluded that the penalties imposed on Gold Kist were invalid.
In Gold Kist the penalty imposed under the same marketing statute on a different classification of peanuts was held not to plainly impose a penalty on the classification of peanuts in question. In the present case, as I have pointed out, the Act does not plainly impose the § 1314(a) penalty on a dealer except to the extent he has acquired from a producer, nor plainly impose it on his function as seller, nor upon a resale transaction. It does not plainly impose that penalty on transactions the subject matter of which is not shown to be over-quota tobacco and the source of which is not shown to be a producer, nor upon a transaction involving tobacco with respect to which it is not known whether a produeer-to-aequirer penalty has already been paid. And, last, the statute does not plainly impose the § 1314(a) penalty upon failure to keep records.
The Secretary concedes that there is no express authorization for regulations (d) and (e).
[E]ven though there is no express authorization in the Act for the regulations challenged in this case, the regulations plainly honor the provisions of the Act, and achieve a result in accord with the statutory scheme. Accordingly, the regulations must be sustained by this Court.
Gov’t.Brief, p. 29 (emphasis added). If the statute does not authorize the regulations it does not authorize imposition of a penalty based on those regulations. It would stand Gold Kist on its head to hold that regulations not specifically authorized by statute can serve to make specific a statutory penalty that is not plain and specific.7
Gold Kist fits into the Chevron analysis. The first step in Chevron’s two-part inquiry requires a reviewing court to determine whether Congress had a clear intent as to a particular matter. The Supreme Court said that “[i]f a court, employing traditional tools of statutory construction, ascertains that Congress had an intention on the precise question at issue, that intention is the law and must be given effect.” Chevron, 467 U.S. at 843 n. 9, 104 S.Ct. at 2782 n. 9. Gold Kist provides us a tool of statutory construction: penal statutes are strictly construed; the imposition of a penalty requires that the words of the statute plainly impose it. As I have set out, the words of this statute do not *1276plainly impose the § 1314(a) penalty on a dealer in Cole’s position.
This court holds that Gold Kist is inapplicable because a presumption is involved. The presumption is created by regulation, not by the statute. If that interpretation is accepted an agency can expand its power over areas it can regulate simply by presuming that things or events it wants to have power to regulate constitute something the agency does have power to regulate. An agency may not give itself “clear congressional authorization” to act in or regulate an area simply by presuming that things outside its authority constitute things within its authority.
(4) The failure of the presumption
The Secretary has attempted to cabin analysis to a single question:
Whether the Agricultural Adjustment Act of 1938 permits the Secretary of Agriculture to promulgate regulations which creates [sic] a rebuttable presumption that a dealer in tobacco has participated in marketing in excess of marketing quotas, where the dealer has failed to report the source of tobacco sold and the dealer has sold more tobacco than reported purchased.
Gov’t.Brief, p. 2. This court has accepted that argument and, disregarding other issues, decides that penalties against Cole are valid because Cole has not shown that the presumption is irrational. As I have spelled out, this case is neither so narrow nor so easy.
Turning, however, to the presumption issue I have already pointed out that (d) contains no provision for rebuttal. It unequivocally defines the consequences of a failure to keep records. To create a right to rebut in (d) this court has relied upon the principle of an agency’s interpreting its own regulation and the Secretary’s willingness in this instance to accept from Cole rebuttal evidence that tobacco he resold was not over-quota. But the issue before us is not validity of (d) as applied; it is whether (d) as enacted is beyond the authority of the Secretary. Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414, 65 S.Ct. 1215, 1217, 89 L.Ed. 1700 (1945), and Martin v. Occupational Safety and Health Rev. Comm’n, 499 U.S. 144, 157, 111 S.Ct. 1171, 1179, 113 L.Ed.2d 117 (1991), involved administrative interpretation of ambiguous regulations where the meaning of words used in the regulations was in doubt. Regulation (d) is not ambiguous and contains no reference to a right to rebut. The Secretary’s sole ground for sustaining (d) is its alleged rebuttable presumption. Since (d) contains no presumption and no right to rebut, if Cole is not entitled to 100% relief he is at least entitled to relief from penalties assessed under (d).
The presumption of (e) places on Cole both the burden of coming forward with evidence and the burden of persuasion. Undergirding all presumptions are judicial assessments of probabilities or likelihood that permit inferences to be drawn without proof in the usual sense. I have set out in (2) the elements that necessarily must be accepted without proof in Cole’s case. They are too sweeping and too far from the necessary elements of proof to be intuitively rational. Moreover, with respect to probabilities or likelihood, we do not know whether as a general proposition the paper trail system that was in place when this case began was being complied with and would have revealed the information that this court says was available. We do know that the system in place when this ease began has been revamped. Also, we do not know how much over-quota tobacco was in the stream of tobacco marketing, whether 10% or 80% of the total; if hypothetically 10% was over-quota there is little likelihood that sales made by Cole and not recorded were in fact over-quota tobacco.
This court’s justifications for the validity of the presumption are in large part circular. To the question whether it is irrational to presume that tobacco sold by a dealer without proper record is over-quota tobacco, the court answers that this fact is presumed. (P. -.) To the point that a dealer resale may not validly be presumed to evidence a producer-to-acquirer sale, the court responds that the presumption answers that problem. (P.-.) The rationality of a presumption cannot be established by the fact of its existence. Finally, the court relies upon its view *1277that there is nothing intuitively irrational about the presumption and, as support, gives a hypothetical involving collusion between an over-quota producer and a fraudulent acquirer.
The district court gave this ease a decent burial. I would leave it there.

. Pub.L. No. 430, 52 Stat. 31, Sec. 311(a), codified, as amended, as 7 U.S.C. § 1311 et seq.

. 7 U.S.C. § 1375 Regulations:
(a) The Secretary shall provide by regulations for the identification, wherever necessary, of corn, wheat, cotton, rice, peanuts, or tobacco so as to afford aid in discovering and identifying such amounts of the commodities as are subject to and such amounts thereof as are not subject to marketing restrictions in effect under this subchapter.
(b) The Secretary shall prescribe such regulations as are necessary for the enforcement of this subchapter.

. It is worth noting that neither regulation mentions § 1314(a) but only "penalty” and “the penalty thereon.”

. The penalty was imposed for two different 1ypes of tobacco, flue-cured and burley, and for three different marketing years:
-1985-86 — penalty of $682.72 assessed for excess marketing of flue-cured tobacco based on 7 C.F.R. § 725.94(d).
-1986-87 — penalty of $28,033.20 assessed for excess marketing of burley tobacco based on 7 C.F.R. § 726.88(d) and (e); and penalty of $318,163.02 assessed for excess marketing of flue-cured tobacco based on C.F.R. § 725.-94(d).
-1987-88 — penalty of $51,877.65 assessed for excess marketing flue-cured tobacco. It is unclear whether this penalty was based on 7 C.F.R. § 725.94(d) or (e) or both.

. The impact of the regulatory scheme is accented by Cole’s contention that his failures of record-keeping arose from fraud perpetrated upon him by a third party using his dealer cards. This court, n. 12, says this is irrelevant and leaves open whether proof of fraud can rebut the presumption.

. 7 U.S.C. § 1359(g) provided, in relevant part: Upon a finding by the Secretary that the peanuts marketed from any crop for domestic edible use by a handler are larger in quantity or higher in grade or quality than the peanuts that could reasonably be produced from the quantity of peanuts having the grade, kernel content, and quality of the quota peanuts acquired by such handler from such crop for such marketing, such handler shall be subject to a penalty equal to 120 per centum of the loan level for quota peanuts on the peanuts which the Secretary determines are in excess of the quantity, grade, or quality of the peanuts that could reasonably have been produced from the peanuts so acquired.

. The above concession by the Secretary confirms what is evident — that nothing in the statute indicates an intent by Congress to trigger penalties by looking to resales downstream from the producer-to-acquirer transaction.