Perfectly Fresh Farms, Inc., et al v. USDA

Filing

FILED OPINION (HARRY PREGERSON, RAYMOND C. FISHER and MARSHA S. BERZON) REJECTED., Judge: MSB Authoring. FILED AND ENTERED JUDGMENT. [8301855] [09-72434, 09-72535]

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
PERFECTLY FRESH FARMS, INC.;
PERFECTLY FRESH CONSOLIDATION,
INC.; PERFECTLY FRESH SPECIALTIES,
INC.; JEFFREY LON DUNCAN,
Petitioners,
v.
UNITED STATES DEPARTMENT OF
AGRICULTURE,
Respondent.






THOMAS BENNETT,
Petitioner,
UNITED STATES
AGRICULTURE,

v.
DEPARTMENT OF
Respondent.

No. 09-72434




No. 09-72535
AGRI Nos.
PACA D-05-001-3
PACA-APP 050010-15
OPINION

On Petitions for Review of an
Order of the Judicial Officer of the
United States Department of Agriculture
Argued and Submitted
May 3, 2011—Pasadena, California
Filed August 28, 2012
Before: Harry Pregerson, Raymond C. Fisher, and
Marsha S. Berzon, Circuit Judges.
Opinion by Judge Berzon
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COUNSEL
Jonathan Barry Sexton (argued) and Stephen T. Kitagawa,
Paul R. Roper, P.C., Orange, California, for petitioner
Thomas Bennett.
Christopher F. Bryan (argued), Law Office of Christopher F.
Bryan, Los Angeles, California, for petitioners Perfectly Fresh
Consolidation, Inc., Perfectly Fresh Farms, Inc., Perfectly
Specialties, Inc., and Jeffrey Lon Duncan.
James Michael Kelley, Marc. L. Kesselman, Leslie K. Lagomarcino (argued), and Brian J. Sonfield, Office of the General
Counsel, U.S. Department of Agriculture, Washington, D.C.,
for respondent U.S. Department of Agriculture.

OPINION
BERZON, Circuit Judge:
In 2001, two entrepreneurs founded Perfectly Fresh Marketing, Inc., a wholesale produce company, and soon thereafter founded three subsidiary companies to handle different
aspects of the business. Although things started out well,
before long the firms found themselves in financial straits,
and declared bankruptcy before the legal proceedings that are
the subject of this appeal began.

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Those proceedings involve a complex, rarely litigated federal statute, the Perishable Agricultural Commodities Act
(“PACA” or “the Act”), 7 U.S.C. § 499a et seq., designed in
part to assure that farmers are paid for their produce. In 2009,
the Judicial Officer (“JO”) of the U.S. Department of Agriculture determined that Perfectly Fresh Farms, Inc., Perfectly
Fresh Consolidation, Inc., and Perfectly Fresh Specialties, Inc.
had violated the PACA by failing to make prompt payment
for produce purchases. See id. § 499b(4); see generally In re
Perfectly Fresh Farms, Inc., 68 Agric. Dec. 507 (U.S.D.A.
2009) (“JO Order”). All three of these entities—like their parent company Perfectly Fresh Marketing, Inc.1—had failed by
the time the Department of Agriculture commenced administrative proceedings against them, each having filed for bankruptcy in February, 2003 and ceased doing business
thereafter.
The penalty assessed against the three entities—publication
of the facts and circumstances of their violations—caused
them no harm, given that they were no longer in business. But
the JO also determined that the two individual petitioners in
this case were “responsibly connected” to the Subsidiaries.
See 7 U.S.C. § 499a(b)(9). The Subsidiaries have conceded
that it is primarily for these individuals’ benefit that they have
petitioned for review. The JO found that Jeffrey Lon Duncan
was responsibly connected with Consolidation, of which he
was the president, a director, and a ten percent owner, and that
Thomas Bennett was responsibly connected with Farms, of
which he was president, a director, and a ten percent owner.
As “responsibly connected” individuals, Duncan and Bennett
are subject to employment and licensing bans of variable
duration in the perishable agricultural commodities industry.
See id. §§ 499d(b) & 499h(b). They, and the Subsidiaries,
petitioned for review of the JO’s order.
1

We will refer to each company by the distinguishing word in its name
(e.g., “Consolidation” or “Farms”) and to the three subsidiaries collectively as the “Subsidiaries.”

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I
A.
The Perishable Agricultural Commodities Act “was enacted
. . . in 1930, and has undergone numerous amendments since
that time. The Act was aimed at preventing unfair business
practices and promoting financial responsibility in the fresh
fruit and produce industry.” Farley & Calfee, Inc. v. U.S.
Dep’t of Agric., 941 F.2d 964, 966 (9th Cir. 1991). Central
here is the PACA provision making it unlawful for “any commission merchant, dealer, or broker . . . to fail or refuse truly
and correctly to account and make full payment promptly in
respect of any transaction in any [perishable agricultural]
commodity to the person with whom such transaction is had.”
7 U.S.C. § 499b(4). The regulations specify that “prompt[ ]”
payment for “produce purchased by a buyer” is payment
“within 10 days after the day on which the produce is accepted.” 7 C.F.R. § 46.2(aa)(5); see also id. § 46.2(aa)(11) (allowing parties to opt out of the ten-day default rule).
The Secretary of Agriculture (the “Secretary”) may, upon
notification of an alleged violation, commence administrative
proceedings against any commission merchant, dealer, or broker. 7 U.S.C. § 499f(c)(2). At the conclusion of such proceedings, the Secretary may issue a “reparation order” requiring
the respondent to pay the “person complaining” “the amount
of damage . . . to which such person is entitled as a result of
[the] violation.” Id. § 499g(a). The Secretary may also “publish the facts and circumstances of such violation and/or, by
order, suspend the license of [the] offender for a period not to
exceed ninety days, except that, if the violation is flagrant or
repeated, the Secretary may, by order, revoke the license of
the offender.” Id. § 499h(a).2
2

As we explain later, the Secretary has delegated these responsibilities
to the JO. See infra note 5.

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Additionally, the Act requires all persons who “carry on the
business of a commission merchant, dealer, or broker” to have
a valid and effective license. Id. § 499c(a). There are statutory
bans, usually of a year or two, on the employment and licensing of, and possible surety bond requirements for, “any person, or any person who is or has been responsibly connected
with any person . . . (1) whose license has been revoked or is
currently suspended by order of the Secretary; [or] (2) has
been found . . . to have committed any flagrant or repeated
violation” of the Act.3 Id. § 499h(b); see id. § 499d(b); see
also id. § 499d(c).
The Act defines “responsibly connected” as “affiliated or
connected with a commission merchant, dealer, or broker as
(A) partner in a partnership, or (B) officer, director, or holder
of more than 10 per centum of the outstanding stock of a corporation or association.” Id. § 499a(b)(9). Congress amended
the Act in 1995, making the foregoing definition of “responsibly connected” rebuttable:
A person shall not be deemed to be responsibly connected if the person demonstrates by a preponderance of the evidence [(1)] that the person was not
actively involved in the activities resulting in a violation of this chapter and [(2)] 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); see Perishable Agricultural Commodities Act Amendments of 1995, Pub. L. No. 104-48, § 12(a),
109 Stat. 424. The broad definition of “responsibly connect3

Under the PACA, “[t]he terms ‘employ’ or ‘employment’ mean any
affiliation of any person with the business operations of a licensee.” 7
U.S.C. 499a(b)(10).

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ed,” and the difficulty of rebutting the presumption of responsible connection, accord with the House Committee on
Agriculture’s observation that the PACA is “admittedly and
intentionally a ‘tough’ law,” S. Rep. No. 84-2507, at 3 (1956),
reprinted in 1956 U.S.C.C.A.N. 3699, 3701 (quoting H. Rep.
No. 84-1196, at 2 (1955)), an observation with which the federal courts of appeals have generally agreed. See Baiardi
Food Chain v. United States, 482 F.3d 238, 241 (3d Cir.
2007); Golman-Hayden Co. v. Fresh Source Produce Inc.,
217 F.3d 348, 351 (5th Cir. 2000); Martino v. U.S. Dep’t of
Agric., 801 F.2d 1410, 1411 (D.C. Cir. 1986).
B.
The facts underlying these petitions for review are as follows:
Gary Tice was an experienced professional in the produce
industry. He sought out Jeffrey Lon Duncan to start a produce
firm with him. Duncan had also worked in the produce industry for some time and had developed an expertise in selling
produce to cruise lines, “a very exacting business given that
ships are in port for a very short time and are more demanding
than other customers.” JO Order at 520. Tice was more
knowledgeable than Duncan about the ins and outs of running
a business, having spent the last few years advising other
companies on strategy and operations. Together Tice and
Duncan founded Perfectly Fresh Marketing, Inc.
(“Marketing”) in June, 2001. At the outset, Tice and his wife
owned fifty-one percent of Marketing and Duncan the remainder.
Later, after a new business partner made a substantial
investment in Perfectly Fresh, three subsidiaries were formed:
Specialties, Farms, and Consolidation. Specialties was to sell
produce to supermarkets; Consolidation was to focus on selling to cruise lines; and Farms was to develop “grower relationships, such as an exclusive agreement to distribute

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papayas grown by Hawaiian Pride.” JO Order at 516. Marketing owned ninety percent of each of the Subsidiaries. According to the paperwork filed with the Department of
Agriculture, Duncan owned the remaining ten percent of Consolidation; Thomas Bennett—a forty-year veteran of the produce industry whom Tice had brought aboard—owned the
same percentage of Farms.4
The same papers listed Duncan as president and a director
of Consolidation and Bennett as president and a director of
Farms. In spite of their titles, neither Duncan nor Bennett was
much involved in the legal or financial affairs of their companies. Both testified to having signed the corporate paperwork
fairly casually. Indeed, according to Bennett, the “title of
president was [given to him] just to allow him to deal with a
higher level of personnel at the companies to which he would
be selling,” JO Order at 521; he did not believe himself to
have authority even to sign checks on behalf of Farms.
The precise relationship between Marketing and its newly
formed subsidiaries is the main issue in this case. This much,
taken from the JO’s order, appears clear:
The four companies were to be run as one entity,
with Perfectly Fresh Marketing, Inc., essentially
managing the overall operations, and Consolidation,
Farms, and Specialties handling sales, each in its
own sphere of specialization. . . . Mr. Tice, Mr. Bennett, and Mr. Duncan all considered that the three
new companies were sales entities, with Perfectly
Fresh Marketing, Inc., handling all the operations
including the purchasing; Perfectly Fresh Marketing,
Inc., would buy all the produce and transfer it to the
appropriate company; Perfectly Fresh Marketing,
Inc., leased all the warehouse space; and Perfectly
4

The record does not indicate the ownership of the remainder of Specialties.

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Fresh Marketing, Inc., handled the receiving when
produce arrived at the warehouse. None of the entities ever held a board meeting.
It appears that customers knew of the companies
as “Perfectly Fresh” and were not aware that in reality four different companies existed. . . . Generally,
checks from customers went first into the [Subsidiaries’] bank accounts, but were then transferred into
Perfectly Fresh Marketing, Inc.’s account to keep the
other accounts at a virtual zero balance. According
to Mr. Tice, all the purchasing was done by Perfectly
Fresh Marketing, Inc., even though the accounts payable documents . . . admitted into evidence generally
linked each purchase to a specific company and even
though the produce payables listed in the schedules
filed with the bankruptcy court generally matched
those accounts payable documents, in terms of which
company purchased which lot of produce.
JO Order at 516-17.
Approximately five months after the Subsidiaries had been
formed, Perfectly Fresh ran into financial difficulties. The
companies managed to keep their accounts current through
the end of November, but in December, Perfectly Fresh
ceased paying its suppliers in a timely manner. The financial
problems worsened, and, on February 3, 2003, Marketing and
the Subsidiaries filed for bankruptcy. In October, 2004, the
Department of Agriculture commenced disciplinary proceedings against the three Subsidiaries—but not Marketing—for
violating the PACA’s requirement that produce dealers, brokers, and commission merchants pay for produce in full and
promptly. See 7 U.S.C. § 499b(4).
Bennett had learned about Perfectly Fresh’s financial difficulties in December; in early January, concerned about his
reputation in the industry, he decided to resign. Duncan

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became aware of the financial troubles around the same time,
but Consolidation, the Subsidiary with which he was primarily involved, remained profitable throughout. The Department
of Agriculture determined that both Duncan and Bennett were
“responsibly connected” individuals within the meaning of
the Act, Bennett with regard to Farms, and Duncan with
regard to both Consolidation and Specialties. Faced with penalties affecting their future participation in the industry, Bennett and Duncan contested the “responsibly connected”
determinations at a hearing before the agency’s Chief Administrative Law Judge (“ALJ”), without success. In the same
proceedings, the Chief ALJ adjudged each of the Subsidiaries
to have violated the Act’s full-payment-promptly provision.
See id. On appeal, the JO determined that Duncan was not
responsibly connected to Specialties, but otherwise affirmed.
We now deny the petitions for review and affirm.
II
We have jurisdiction to hear petitions for review of final
PACA orders. 28 U.S.C. § 2342(2). The JO’s decision constitutes a final order ripe for our review. “[T]he scope of our
review of administrative decisions is narrow: administrative
agency decisions will be upheld unless ‘arbitrary, capricious,
an abuse of discretion, or otherwise not in accordance with
the law . . . .’ ” Farley & Calfee, Inc., 941 F.2d at 966 (quoting 5 U.S.C. § 706(2)(A)). We will affirm the JO’s factual
findings if they are supported by substantial evidence. See
Potato Sales Co. v. Dep’t of Agric., 92 F.3d 800, 803 (9th Cir.
1996). We review his conclusions of law de novo, id., but
with the appropriate level of deference to his interpretations
of the statute his agency administers.
As to what that appropriate level is, two other courts of
appeals have concluded that the JO’s interpretations of the
PACA in disciplinary proceedings are entitled to deference
under Chevron, U.S.A. Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837 (1984). See Coosemans Special-

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ties, Inc. v. Dep’t of Agric., 482 F.3d 560, 564 (D.C. Cir.
2007); G & T Terminal Packaging Co. v. U.S. Dep’t of Agric.,
468 F.3d 86, 95-96 (2d Cir. 2006). We join them.
“[A]dministrative implementation of a particular statutory
provision qualifies for Chevron deference when it appears
[(1)] that Congress delegated authority to the agency generally to make rules carrying the force of law, and [(2)] that the
agency interpretation claiming deference was promulgated in
the exercise of that authority.” United States v. Mead Corp.,
533 U.S. 218, 226-27 (2001). With respect to the first requirement, Congress has provided for PACA violations to be adjudicated “[a]fter opportunity for hearing,” 7 U.S.C. § 499f(d),
and directed that “the Secretary shall determine whether or
not . . . [the respondent] violated” the Act, language that
implies a delegation of interpretative authority. Id. Congress
has also vested the courts of appeals with jurisdiction to
review the outcomes of these adjudications, 28 U.S.C.
§ 2342(2), another indication that Congress intended to create
a “relatively formal administrative procedure tending to foster
the fairness and deliberation that should underlie” pronouncements entitled to Chevron deference. Mead, 533 U.S. at 230.
As to the second requirement for application of Chevron
deference, the JO’s decision was “promulgated in the exercise” of the authority Congress delegated to the agency to
make rulings carrying the force of law, Mead, 533 U.S. at 227:5
5
That the Judicial Officer and not the Secretary himself decides PACA
unfair conduct cases does not render Chevron deference inappropriate. Cf.
INS v. Aguirre-Aguirre, 526 U.S. 415, 425 (1999) (holding that case-bycase adjudications of the BIA are entitled to Chevron deference, even
though Congress conferred adjudicatory authority on the Attorney General). The Secretary of Agriculture has delegated the Judicial Officer
authority to act “as final deciding officer” in formal adjudications, 7
C.F.R. § 2.35(a)(1), pursuant to Congressional authorization to delegate
“the whole or any part of any regulatory function which the Secretary is,
now or after April 4, 1940, required or authorized to perform,” 7 U.S.C.
§ 450d (emphasis added). Congress emphasized that “[w]henever a dele-

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The decision was announced, after a formal hearing, by the
Judicial Officer in an opinion published in Agriculture Decisions, the agency’s official reporter, see In re Perfectly Fresh
Farms, Inc., 68 Agric. Dec. 507 (U.S.D.A. 2009); agency
practice accords precedential significance to such opinions, In
re PMD Produce Brokerage Corp., 59 Agric. Dec. 351, 362
(U.S.D.A. 2000), a practice we have characterized “as the
essential factor in determining whether Chevron deference is
appropriate.” Marmolejo-Campos v. Holder, 558 F.3d 903,
909 (9th Cir. 2009) (en banc) (quoting Alvarado v. Gonzales,
449 F.3d 915, 922 (9th Cir. 2006)) (internal quotation marks
omitted). For all these reasons, we conclude that Chevron deference is accorded to statutory interpretations contained in JO
opinions applying the PACA.
III
As to the merits, the Subsidiaries first argue that the JO
erred in determining that they failed to “make full payment
promptly in respect of . . . transaction[s] in” perishable agricultural commodities. 7 U.S.C. § 499b(4). Because the JO’s
determination that the Subsidiaries purchased produce is supported by substantial evidence, we deny the petition.
The JO’s conclusion that the Subsidiaries failed to make
full payment promptly was based on three independent rationales. First, the JO found that the record evidence, particularly
the Subsidiaries’ business records, indicated that they, and not
Marketing, purchased produce from the suppliers. JO Order at
523-24. Second, the JO interpreted the Subsidiaries’ bankgation is made . . . all provisions of law shall be construed as if the regulatory function . . . had (to the extent of the delegation) been vested by law
in the individual to whom the delegation is made.” Id. § 450e; see also id.
§ 450c (defining the term “regulatory function” as including “determining
whether” orders, licenses, sanctions and other regulatory actions are “authorized or required by law”); id. § 6912(a) (also authorizing delegations
of “any . . . function vested in the Secretary as of October 13, 1994”).

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ruptcy filings as affirmative admissions that they were responsible for payments to suppliers, and even suggested that the
Subsidiaries should be estopped from arguing otherwise. Id.
at 524-27. Third, the JO concluded that Marketing served as
the Subsidiaries’ agent, and as such, liability for Marketing’s
failure to pay suppliers should “flow through” to the Subsidiaries. Id. at 536.
The Subsidiaries contest all of these determinations, arguing that: (1) the JO’s factual determination that the Subsidiaries purchased produce is not supported by substantial
evidence; (2) the bankruptcy filings do not necessarily constitute an express admission; and (3) the JO’s “flow through”
conception of liability under § 499b(4) is legally erroneous.
Because we hold that the JO’s factual determinations are supported by substantial evidence, we need not address the Subsidiaries’ challenges to the JO’s other rationales.
The JO’s determination that the Subsidiaries purchased
produce from suppliers is supported by substantial evidence
in the record. In particular, Perfectly Fresh’s business records,
a letter written by Tice to the agency investigator, testimony
from Perfectly Fresh employees, and the bankruptcy filings of
the Subsidiaries all support the conclusion that the Subsidiaries failed to make payment promptly for produce they purchased from suppliers.
The Subsidiaries’ disagreement with the JO’s factual findings centers on the role of Marketing in the purchasing of produce. According to the Subsidiaries, Marketing did all the
purchasing of produce, which the Subsidiaries then sold.
Some of the record testimony supports this view. Duncan, for
instance, testified that he would put orders from Consolidation’s customers into Perfectly Fresh’s internal system, and
then buyers from Marketing would purchase produce from
suppliers to fill those orders. In other words, according to
Duncan, “[b]uying was done by Perfectly Fresh Marketing.”

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[1] Other testimony, however, supports the JO’s conclusion that the Subsidiaries were buying produce. Bennett testified that “[Farms’] sales team, salesmen, would actually buy
product that they were selling,” even though “all of the
invoices and everything were being paid by Perfectly Fresh
Marketing.” And when Duncan explained the purchasing system in more detail, it became clear that he arranged entire
transactions as a unit, placing orders for produce to be purchased only after receiving orders from his customers, and
calling suppliers to check availability and prices. Duncan provided an illustration of this process: First, he would receive
orders from customers indicating a need for, say, leeks.
Knowing his customer needed a certain quantity of leeks,
Duncan would call suppliers and check their price on leeks,
then call the customer back to close the deal. Duncan would
then put the order into a computer system, where a Marketing
employee would fill out the purchase order, on terms already
ironed out by Duncan, his supplier, and his customer. Both
Bennett and Duncan also received complaints from produce
sellers when they were not paid on time, suggesting that at
least some suppliers believed that they were owed payments
by the Subsidiaries rather than Marketing. The system, then,
was one in which buying and selling were not purely separate
transactions, as at a grocery store, say. While Marketing
employees may have been left to fill out purchase orders, they
did so at the direction of the Subsidiaries, in order to acquire
particular lots of produce already destined for particular customers.
[2] This interpretation is strongly supported by the companies’ business records. The record contains numerous invoices
submitted by suppliers for purchase orders of produce. Most
of these invoices are addressed to Marketing, but some are
addressed to “Perfectly Fresh,” and some are directed to a
particular Subsidiary. Each of these invoices is paired in the
business records with a voucher assigning the particular order
to one of the Subsidiaries. Each Subsidiary in turn maintained
accounts payable files showing debts owed to particular sup-

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pliers of produce, rather than to Marketing. There was also
testimony that the Subsidiaries’ checks were used to pay produce suppliers.
Tice insisted that these records did not show that the Subsidiaries bought produce, arguing that a voucher was “the
same thing as an invoice, if you will, from [M]arketing to
[C]onsolidation, or an invoice from [M]arketing to
[S]pecialities,” and that Marketing did all the buying. The JO
found this testimony not credible in light of a letter Tice had
written to the agency investigator in which he said that Marketing “turned over all its previous business to the three [subsidiaries] and did no actual buying and selling.” The JO’s
credibility determination is entitled to deference, and we see
no basis to disturb it.
The JO also cited the Subsidiaries’ bankruptcy filings as
indicating that they failed to make payment promptly to their
suppliers. The “Schedule F” that each of the Subsidiaries filed
with the bankruptcy court lists the creditors holding unsecured
claims against them and the amount of those claims. The Subsidiaries’ Schedule Fs listed as creditors the same produce
suppliers that were listed in the disciplinary complaints. The
JO determined that the Schedule Fs therefore constituted evidence that the Subsidiaries had violated the Act’s fullpayment-promptly provision, § 499b(4), as they were effectively “admissions that these debts for produce did exist at the
time of the filings.” JO Order at 525.
The Subsidiaries argue that the bankruptcy filings should
not be interpreted as admissions that they, and not Marketing,
had unpaid debts to produce suppliers. The Schedule Fs, the
Subsidiaries note, contained the following disclaimer:
CREDITORS LISTED ON THE ATTACHED
SHEETS WITH AN ASTERISK (*) ARE CREDITORS WHO MAY HAVE STATUTORY TRUST
INTERESTS IN THE RECEIPTS GENERATED

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BY THE OPERATION OF THE DEBTOR’S BUSINESS PURSUANT TO THE PERISHABLE AGRICULTURAL COMMODITIES ACT . . . .
The Subsidiaries argue, based on this disclaimer, that they
only listed debts to produce suppliers on their Schedule Fs
because they believed that the proceeds from the sale of such
produce might still be encumbered by a PACA trust, even if
the produce itself was only directly purchased by Marketing.6
While there appears to be no precedent for PACA trust liability “following” produce in this manner, the Subsidiaries argue
that there may not be complete overlap between PACA trust
liability and “full payment promptly” liability under
§ 499b(4), and that their decision to list debts to produce suppliers on their Schedule Fs for purposes of PACA trust liability does not necessarily constitute an admission with regards
to full payment promptly liability.
[3] Without getting into the complex statutory question of
whether this argument has any merit, we note that even if it
were true, it serves only to defeat the assertion that the Schedule Fs constitute affirmative admissions of full payment
promptly liability that would now estop the Subsidiaries from
suggesting that they had no debts to produce suppliers at all.
Even if the Schedule Fs do not necessarily, for purposes of
estoppel, constitute admissions, the JO was still entitled to
interpret them as evidence that the Subsidiaries did purchase
produce from suppliers. This interpretation is, after all, consistent with the rest of the evidence, particularly the invoices
6

“PACA trust” is a trust created by the statute to protect the claims of
produce sellers, see 7 U.S.C. § 499e(c), that “elevate[s] the claims of
unpaid perishable agricultural commodities suppliers over all other creditors of the bankrupt estate.” Middle Mountain Land & Produce, Inc. v.
Sound Commodities, Inc., 307 F.3d 1220, 1224 (9th Cir. 2002). The
PACA “requires licensed dealers to hold all perishable commodities purchased on short-term credit, as well as sales proceeds, in trust for the benefit of unpaid sellers.” Am. Banana Co. v. Republic Nat’l Bank of N.Y.,
N.A., 362 F.3d 33, 37 (2d Cir. 2004).

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and vouchers, which closely matched the debts to produce
suppliers listed on the Schedule Fs. Furthermore, Marketing
itself listed “virtually no produce creditors on its Schedule F,”
casting significant doubt on the Subsidiaries’ claims that Marketing was responsible for purchasing produce and that the
Schedule Fs were intended to reflect PACA trust liability. If
the Subsidiaries’ Schedule Fs were reflecting derivative
PACA trust liability, then the Marketing Schedule Fs, prepared by the same individuals, should have listed the same
obligations, as Marketing would have had primary PACA
trust liability were it the entity that had purchased the produce. Moreover, when asked about the Schedule F listings at
the hearing, Tice never mentioned PACA trust liability,
explaining instead that the Subsidiaries listed debts to produce
suppliers as “a way to be able to put the asset to the debt.”
The Schedule Fs therefore reinforce the JO’s conclusion that
the Subsidiaries purchased produce and failed to pay for it
promptly.
[4] There is therefore substantial evidence to support the
JO’s finding that the Subsidiaries purchased produce. The
hearing testimony, business records, and bankruptcy filings
all reinforce this conclusion, and while the record as a whole
may be susceptible to different interpretations, we cannot say
that the evidence marshaled by the JO was not adequate to
support his conclusions.
IV
[5] The Subsidiaries next argue that the JO erred in determining that their violations were “willful” and “repeated.” JO
Order at 527. PACA imposes licensing and employment
restrictions on individuals found to have committed “any flagrant or repeated violation of section 499b.” 7 U.S.C.
§§ 499d(b), 499h(b)(2).7 Where the violations are “ ‘willful,’
7

Because “[t]he Act prescribes consequences for violations that are ‘flagrant or repeated . . . [o]ur . . . finding that the violations were repeated

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license revocation proceedings may be initiated without a
prior written warning and opportunity to demonstrate or
achieve compliance.” Potato Sales, 92 F.3d at 804 (citing 5
U.S.C. § 588(c); 7 C.F.R. § 46.45(e)(5)). Violations that “did
not occur simultaneously . . . must be regarded as ‘repeated’
violations.” Reese Sales Co. v. Hardin, 458 F.2d 183, 187 (9th
Cir. 1972). For example, fifty-one transactions has been held
to fall “plainly within the permissible definition of ‘repeated.’ ” Farley & Calfee, 941 F.2d at 968. The JO was thus correct in determining that the violations committed by the
Subsidiaries were “repeated” in light of the number of violations (286 for Consolidation, 142 for Farms, and 796 for Specialties) and the amount unpaid (over $373,000 for
Consolidation, over $442,000 for Farms, and over $263,000
for Specialties). JO Order at 528.
[6] PACA violations are “ ‘willful’ if the violator: ‘(1)
intentionally does an act which is prohibited, irrespective of
evil motive or reliance on erroneous advice, or (2) acts with
careless disregard of statutory requirements.’ ” Potato Sales,
92 F.3d at 805 (quoting Lawrence v. Commodity Futures
Trading Comm’n, 759 F.2d 767, 773 (9th Cir. 1985)). The
Subsidiaries argue that violations premised on the JO’s “flow
through” theory of liability cannot be willful because, under
that theory, the Subsidiaries were held responsible for the acts
of Marketing and committed no violations of their own. That
argument may be correct, but it has no bearing on the JO’s
independent determination that the Subsidiaries themselves
violated PACA’s full payment promptly provision, and that
those violations were willful. As the JO observed, there is
ample evidence that the Subsidiaries’ violations were intentional or committed with careless disregard of statutory
requirements. Bennett and Duncan both admitted at the hearis sufficient,” and we need not consider whether they were “flagrant.”
Farley & Calfee, 941 F.2d at 968 n.4; cf. Potato Sales, 92 F.3d at 805
(holding that the petitioner’s violations were “flagrant” and thus declining
to decide whether they were also “repeated”).

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ing that the Subsidiaries continued to place orders for produce
despite knowing that their suppliers were not being paid
promptly.
V
There is also substantial evidence in the record to support
the JO’s conclusion that Duncan and Bennett were “responsibly connected” to the Subsidiaries.
PACA creates a presumption of responsible connection as
to persons who are “affiliated or connected with a commission merchant, dealer, or broker as (A) partner in a partnership, or (B) 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). That presumption can be rebutted if a person can show:
by a preponderance of the evidence [(1)] that the
person was not actively involved in the activities
resulting in a violation of this chapter and [(2)] that
the person [ ] was only nominally a partner, officer,
director, or shareholder of a violating licensee or
entity subject to license.
Id. (emphasis added). There is no dispute that Duncan and
Bennett are subject to PACA’s presumption of responsible
connection; they argue only that they have carried their burden of rebutting it.
[7] The JO articulated in In re Michael Norinsberg, 58
Agric. Dec. 604 (U.S.D.A. 1999), the standard for determining when a person is “actively involved in the activities resulting in a violation.” “The standard,” the JO explained, “is as
follows:”
A petitioner who participates in activities resulting in
a violation of the PACA is actively involved in those

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activities, unless the petitioner demonstrates by a
preponderance of the evidence that his or her participation was limited to the performance of ministerial
functions only. Thus, if a petitioner demonstrates by
a preponderance of the evidence that he or she did
not exercise judgment, discretion, or control with
respect to the activities that resulted in a violation of
the PACA, the petitioner would not be found to have
been actively involved in the activities that resulted
in a violation of the PACA . . . .
Id. at 610-11.8 Neither Duncan nor Bennett takes issue with
Norinsberg’s articulation of what it means to be “actively
involved.” The term is certainly ambiguous, and we cannot
say that the JO’s interpretation in Norinsberg is “arbitrary,
capricious, or manifestly contrary to the statute.” Chevron,
467 U.S. at 844. We therefore accept and apply it.
This court has in one case, Maldonado v. Department of
Agriculture, 154 F.3d 1086 (9th Cir. 1998), addressed the
issue of “active[ ] involve[ment]” under § 499a(b)(9). Maldonado overturned the JO’s determination that the petitioner
was actively involved in an activity resulting in failure to pay
promptly. We found no active involvement even though the
petitioner “r[a]n[ ] the produce department” of the company
that had failed to pay for produce promptly, stressing that the
relevant company had defaulted in large part because new
owners “looted” it through various fraudulent activities of
which Maldonado was not aware. Id. at 1086, 1088.
Maldonado predated Norinsberg, and did not set forth general criteria for what it means to be “actively involved in the
8

The JO defined this standard after the D.C. Circuit had granted a petition for review of a “responsibly connected” determination on the ground
that the JO had “inadequately articulated the factors relevant in interpreting ‘actively involved.’ ” Norinsberg v. U.S. Dep’t of Agric., 162 F.3d
1194, 1196 (D.C. Cir. 1998).

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activities resulting in a violation” (largely because the JO had
himself yet to develop a standard). The JO explicitly referenced Maldonado in announcing the new standard in Norinsberg, explaining that he believed the standard was “consistent
with [his] reading of Maldonado.” Norinsberg, 58 Agric. Dec.
at 612.
In any event, “[a] court’s prior judicial construction of a
statute trumps an agency construction otherwise entitled to
Chevron deference only if the prior court decision holds that
its construction follows from the unambiguous terms of the
statute and thus leaves no room for agency discretion.” Nat’l
Cable & Telecomms. Ass’n v. Brand X Internet Servs., 545
U.S. 967, 982 (2005). Thus, Maldonado only remains good
law to the extent it is consistent with Norinsberg. Applying
Norinsberg, the JO noted that “the buying and selling of produce at a time when produce sellers are not getting paid pursuant to the requirements of PACA . . . constitute[s] [active]
involvement.” JO Order at 531 (citing In re Janet S. Orloff,
62 Agric. Dec. 281, 290-92 (U.S.D.A. 2003)).
There is ample evidence in the record to support the JO’s
determination that Duncan was actively involved in the violations committed by Consolidation. In disputing this determination, Duncan again argues that Consolidation did not
purchase produce, and that he himself was merely a “salesman.” As we have already held, there is substantial evidence
to support the JO’s conclusion that Consolidation purchased
produce from suppliers.
[8] Moreover, Duncan’s personal role in Consolidation
was not “limited to the performance of ministerial functions
only.” Norinsberg, 58 Agric. Dec. at 611. Duncan had personal relationships with the suppliers to whom he turned
when he received an order from his customers, and those suppliers looked to Duncan when they were not getting paid. As
discussed earlier, Duncan called suppliers in response to
orders placed by his customers, and negotiated the terms of

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orders that would allow produce to flow from suppliers to
Consolidation to customers. Duncan would then put the order
into a computer system, where a Marketing employee would
fill out the purchase order, on terms already ironed out by
Duncan, his supplier, and his customer. This testimony shows
that the “buyers” who worked for Marketing were the ones
performing “ministerial” tasks, and that Duncan was engaged
in activity involving “judgment, discretion, or control.” Id.
Orloff, on which Duncan relies, does not help him. In that
case, an individual who purchased produce but was not
involved in payment decisions argued that she was therefore
not actively involved in the activities resulting in a violation
of the PACA. Orloff, 62 Agric. Dec. at 290. The JO rejected
this argument, observing that the Petitioner’s actions were not
ministerial because she “decided whether to make purchases
of frozen foods . . . and chose to do so even though she knew
or should have known that [the company] was not paying produce suppliers . . . in accordance with the PACA.” Id. at 29192. Duncan’s argument that he was not actively involved in
PACA violations because he was not responsible for sending
the payments directly to suppliers and because Consolidation
itself was profitable is therefore foreclosed. Like the petitioner in Orloff, Duncan continued to purchase produce
despite knowing that Perfectly Fresh was unable to pay its
suppliers in a timely fashion.
[9] Substantial evidence also supports the JO’s determination that Bennett was actively involved in the PACA violations of Farms. Like Duncan, Bennett was in charge of his
subset of the overall business of Perfectly Fresh, and he exercised “judgment, discretion, or control” with respect to that
business. Norinsberg, 58 Agric. Dec. at 611. In particular,
Bennett supervised a cadre of employees and undertook a significant outside storage business on his own initiative. Unlike
Duncan, however, Bennett “instructed the salesmen not to buy
product until we got some of the receivables in” after learning
that Perfectly Fresh was having trouble paying its bills, and

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he resigned less than a month later. Bennett’s efforts to avoid
committing PACA violations are admirable, but, unfortunately, no less than 21 violations occurred while he was still
in charge of Farms, and he cites no authority for the suggestion that his later resignation absolves him of responsibility
for those violations.
[10] The conclusion that Duncan and Bennett were
actively involved in the activities resulting in the violation
precludes them from rebutting the presumption that they were
“responsibly connected” to the Subsidiaries. We therefore
need not consider whether they have carried their burden
under the second prong.9
CONCLUSION
The JO’s determination that the Subsidiaries purchased
produce and failed to make prompt payment for it as required
by § 499b(4) is supported by substantial evidence. The JO’s
further conclusion that Duncan and Bennett were responsibly
connected to Consolidation and Farms under § 499a(b)(9) is
therefore also supported by substantial evidence, and free of
legal error.
9
We note, however, that we are troubled by the JO’s insistence that a
shareholder is automatically an “owner” for purposes of the “alter ego”
defense (which allows rebuttal of the presumption of responsible connection under the second prong if a person demonstrates that he “was not an
owner of a violating licensee or entity subject to license which was the
alter ego of its owners,” 7 U.S.C. § 499a(b)(9)), even when he demonstrates that the violating licensee is the alter ego of a different owner. See
JO Order at 539 n.15; In re Anthony L. Thomas, 59 Agric. Dec. 367, 38688 (U.S.D.A. 2000); In re Michael Norinsberg, 56 Agric. Dec. 1840,
1864-65 (U.S.D.A. 1997), rev’d on other grounds, 162 F.3d 1194 (D.C.
Cir. 1998), final decision on remand, 58 Agric. Dec. 604, 609 n.4 (1999).
The JO has not, in our view, adequately explained the basis for such a
blanket rule. In particular, his explanation does not take account of the use
of the plural “owners” with regard to the alter ego factor, or of the use
elsewhere in the statute of the term “shareholder” as well as “owner.” See
Anthony Thomas, 59 Agric. Dec. at 388; 7 U.S.C. § 499a(b)(9).

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For the foregoing reasons, the petitions for review are
REJECTED.