H.C. MacClaren, Inc. v. United States Department of Agriculture
Docket: 02-3006
Court: Court of Appeals for the Sixth Circuit; September 4, 2003; Federal Appellate Court
H.C. MacClaren, Inc., a wholesale produce broker, appeals a decision by the U.S. Secretary of Agriculture to revoke its license under the Perishable Agricultural Commodities Act (PACA) due to sixty-one violations. Employees admitted to altering fifty-three USDA inspection certificates and issuing eight fraudulent accounts of sale. MacClaren argues that the Secretary did not consider PACA's remedial purpose and that the revocation was unjustified. The court affirms the Secretary's decision, noting that MacClaren, which has operated since the 1920s and held a PACA license since 1974 without prior violations, had committed these violations from 1994 to 1996, leading to significant underpayments to suppliers totaling $137,502.15. The violations were uncovered during an investigation into another company, prompting USDA inspectors to review MacClaren's records, revealing discrepancies in multiple files.
Gregory MacClaren and Darrell Moccia denied any prior knowledge of the alterations to USDA inspection certificates but expressed a desire to cooperate with investigations. They initiated an internal review, which revealed numerous additional altered certificates that they reported to investigators. Employees Olds, Gottlob, and Johnston admitted to altering inspection certificates, asserting that MacClaren and Moccia were unaware of these actions. Gottlob confessed to issuing seven false accounts of sale, while Olds admitted to one.
MacClaren proactively contacted affected suppliers to indicate his intent to make restitution, claiming nearly full repayment of amounts underpaid due to the alterations. Despite the admissions of wrongdoing, MacClaren retained Olds and Gottlob under the condition they reimburse the company for restitution, with Olds repaying through paycheck deductions. Gottlob was employed for only six weeks before termination for poor performance and did not repay any restitution.
On June 17, 1999, the USDA charged MacClaren with violating the Perishable Agricultural Commodities Act (PACA) for altering 53 inspection certificates and submitting false accounts, seeking revocation of MacClaren's license due to "willful, flagrant and repeated violations." A hearing was conducted on September 20-21, 2000, where the Administrative Law Judge (ALJ) concluded that MacClaren was responsible for the actions of its salesmen, confirming that the alterations occurred. The ALJ determined that MacClaren acted responsibly upon discovering the fraud and took measures for restitution, leading to the imposition of a civil penalty of $50,000 instead of revocation or suspension of its license, as no evidence suggested such actions would benefit the industry more than a monetary fine.
On May 23, 2001, the agency appealed an ALJ's decision regarding Gregory MacClaren's violations to the Judicial Officer for the Secretary of Agriculture, arguing that the ALJ incorrectly assessed the violations as non-willful and imposed a civil monetary penalty instead of revoking the license. On November 8, 2001, Judicial Officer William G. Jenson upheld most of the ALJ's findings but concluded that MacClaren's owners should have known about the alterations to USDA inspection certificates and false sales accounts between June 1994 and November 1996. The Judicial Officer replaced the civil monetary penalty with a license revocation sanction. MacClaren filed a petition for review on January 2, 2002, adhering to the 60-day requirement stipulated in 28 U.S.C. 2344.
The Perishable Agricultural Commodities Act (PACA), enacted in 1930, regulates the interstate commerce of perishable agricultural goods to ensure financial responsibility and mitigate irresponsible business practices. PACA imposes strict licensing requirements and outlines severe sanctions for violations, including mandatory prompt payment for purchases and prohibitions against fraudulent statements and misaccounting. Violations can lead to license suspension or revocation by the Secretary, with amendments in 1995 allowing for civil penalties up to $2,000 per violation.
The USDA established a standard for imposing sanctions that focuses on the nature of violations and the remedial purposes of the relevant regulatory statute, rather than relying on a prior 'severe' sanction policy. This standard requires the Secretary to consider all circumstances, both mitigating and aggravating, and to weigh administrative recommendations effectively. MacClaren argues that the Secretary did not apply this standard correctly in revoking its license, claiming a failure to assess the violations in relation to the remedial purpose of the Perishable Agricultural Commodities Act (PACA) and to consider all relevant circumstances. The decision made by the Secretary is subject to de novo review, particularly regarding the application of legal standards.
MacClaren's assertion includes that the remedial purpose of PACA is to ensure only financially responsible brokers operate, which aligns with deterring unscrupulous behavior. MacClaren highlights its actions of investigating wrongdoing and making restitution as evidence of financial responsibility. The company contends that the Secretary's choice to revoke the license instead of opting for a civil monetary penalty neglected to consider the benefits of such a penalty, which could promote PACA's goals and encourage cooperation from dealers. Additionally, MacClaren believes the Secretary overlooked critical factors like the sanction's impact on those affected, the deception involved in the salesmen's actions, and the absence of any prior violations by the company.
Before deciding on a sanction for MacClaren, the Secretary referenced the sanction policy outlined in S.S. Farms Linn County, Inc., highlighting that the main goal of sanctions under PACA is to deter both the violator and others from future misconduct. The Secretary determined that a civil monetary penalty would be inadequate for deterring MacClaren and thus deemed license revocation necessary. The policy emphasizes examining the "nature of the violations" in relation to PACA's remedial purposes rather than the actions taken post-violation. MacClaren's violations, which included altering inspection certificates and falsifying accounts, led to losses exceeding $136,000, indicating a lack of financial responsibility. The Secretary noted that the number and severity of these violations justified the revocation of MacClaren's license, aligning with precedents that consider the statute's purpose in sanction decisions.
MacClaren contested the decision, arguing that the license revocation unfairly targeted Gregory MacClaren and Darrell Moccia while exempting Olds and Gottlob. However, the sanction applied to MacClaren as a corporate entity, as the actions of its employees, who violated PACA knowingly and willfully during their employment, are attributed to the company. Under PACA, violations by employees are considered as violations of the company itself. Furthermore, willful actions are defined as those taken knowingly in disregard of legality, including actions taken in reckless disregard of statutory provisions. MacClaren's employees admitted to their misconduct, confirming their violations as willful acts attributable to the company.
MacClaren contends that the aggravating factors cited by the Secretary are largely attributable to the actions of its salesmen, except for MacClaren's negligent supervision and retention of unlawfully behaving employees, which MacClaren argues should not be considered. However, MacClaren fails to provide legal support for this position. The Secretary is deemed to have appropriately considered the management and supervision of employees in a regulated environment when determining sanctions. Factors such as the retention of employees who violate PACA, while not explicitly prohibited, are relevant to decisions on license suspension or revocation aimed at deterring future violations. MacClaren is also held liable for the willful violations of its employees, justifying the Secretary's consideration of these aggravating factors.
MacClaren claims that the Secretary's decision to revoke its license for PACA violations is erroneous. The Secretary's sanction decision can only be overturned if found legally unwarranted or factually unjustified, with appellate courts lacking the authority to reweigh evidence or substitute their judgment. MacClaren argues that the revocation lacks factual justification, asserting that it has taken steps to amend past wrongdoings and prevent future violations. Additionally, MacClaren disputes the Secretary's conclusion that its executives would have been aware of altered inspections and false accountings had they exercised proper supervision.
License revocation under the Perishable Agricultural Commodities Act (PACA) is justified for "flagrant or repeated" violations as defined in 7 U.S.C. 499h(a). The court evaluates whether violations are "flagrant" by examining the number of violations, financial impact, and the duration of the infractions. "Repeated" violations are those not occurring simultaneously. The Secretary determined that MacClaren's violations were both flagrant and repeated, supported by evidence that three of its salesmen altered fifty-three inspection certificates over twenty-nine months, resulting in underpayments of $130,903 to twenty-two suppliers.
The Secretary's authority to revoke MacClaren's license was affirmed, paralleling the precedent set in Allred's Produce. The decision aimed to deter future violations, with the Secretary noting the willful nature of the violations, the length of time over which they occurred, and the lack of oversight from MacClaren’s principals, Gregory MacClaren and Darrell Moccia. The Secretary found that a civil penalty alone would not suffice to deter future misconduct.
In assessing negligence, the Secretary referenced PACA requirements and industry testimony, concluding that the failure to review salesmen's transaction files constituted gross negligence. The evidence supported the Secretary's legal conclusions, justifying the license revocation as a proper exercise of discretion. Consequently, the Secretary's decision was affirmed.
The Honorable William W. Schwarzer, a Senior United States District Judge, presided over the case. The USDA acknowledged that MacClaren made partial repayments for underpayments. Gottlob received immunity for his testimony, whereas Olds testified without immunity. The Secretary of Agriculture delegated authority to the Judicial Officer to serve as the final decision-maker in USDA adjudicatory proceedings, in accordance with 5 U.S.C. 556 and 557. MacClaren contends that revocation of his license is unwarranted and advocates for a civil monetary penalty as a more suitable deterrent, suggesting it would foster cooperation among dealers and restitution efforts. While the argument has merit, it is noted that a civil penalty might not sufficiently deter future violations, as violators could exploit the possibility of cooperation and restitution. The court's role is limited to assessing whether the Secretary's choice of remedy was permissible, as both revocation and a civil penalty were valid options. The court cannot reassess the evidence to determine if a lesser sanction would have been appropriate.
