Unpublished Disposition, 923 F.2d 862 (9th Cir. 1991)

MEMORANDUM^* 

Joe Phillips & Associates, Inc. (JPA), a produce firm, challenges a Department of Agriculture finding that the firm violated the Perishable Agricultural Commodities Act (PACA) by failing to pay fully and promptly for a number of shipments. We affirm the Department's decision.

FACTS & PROCEEDINGS BELOW

Joe Phillips is a 72-year-old man who has been in the produce business all his life.¹  In 1982, Phillips opened a produce business with Sam Mathis. Phillips provided capital and the name for the business, JPA; he also served as president; Mathis ran the business day to day. In 1987, Phillips learned that the business was in financial trouble. He closed the office within 48 hours and used the remaining capital in the corporation to pay each creditor 30% of the money due. Phillips also negotiated a settlement with the firm's creditors in which he personally paid an additional 30% of the money due over the next seven months.²  This amounted to more than $100,000 of his own funds. All but one creditor accepted the money as payment in full. The creditor who objected, Agri-Empire, has been paid.

In 1988, the Department of Agriculture brought an administrative complaint against JPA for failure to make full and prompt payment to certain produce sellers. Phillips, as president of JPA, responded with two informal letters explaining the settlements he had made, asking for time to file a formal answer, and noting that he had been in contact with the Department throughout the settlement process. Phillips then hired an attorney for JPA who formally answered the complaint by 1) denying that there were any payments outstanding, 2) denying any willful, flagrant, or repeated violations, and 3) claiming lack of knowledge as to whether the transactions took place in interstate commerce. The Department filed a motion for decision on the pleading, charging that JPA had admitted all of the material facts in the Phillips letters. JPA objected that the letters, as well as JPA invoices submitted by the Department, were not properly before the Administrative Law Judge on a motion on the pleadings. JPA asked for a hearing. The ALJ denied the request for a hearing and found that JPA had committed willful, flagrant, and repeated violations of PACA. The Secretary affirmed. JPA appeals charging that agency regulations and due process required that the ALJ grant a hearing before reaching a decision in this case and that the ALJ should not have considered evidence outside the pleadings in making his ruling.

JURISDICTION AND STANDARDS OF REVIEW

This court has jurisdiction over final orders of the Secretary of Agriculture under 28 U.S.C. §§ 2342, 2347 (1988). We will uphold agency decisions unless we find them to be arbitrary, capricious, or an abuse of discretion. 5 U.S.C. § 706(2) (A) (1988). We will uphold an agency's fact findings if we find that they are supported by substantial evidence. FTC v. Indiana Fed'n of Dentists, 476 U.S. 447, 454 (1986). Although this standard is deferential to the agency, we must review the record as a whole, weighing evidence that supports, as well as detracts from, the agency's determination. Burkhart v. Bowen, 856 F.2d 1335, 1338 (9th Cir. 1988). Findings of law are subject to de novo review with deference to an agency's reasonable construction of statutes. Mester Mfg. Co. v. INS, 879 F.2d 561, 565 (9th Cir. 1989).

DISCUSSION

Congress enacted PACA in 1930 to protect farmers in the produce industry which was thought to be unusually prone to fraud and unfair practices. See Tri-County Wholesale Produce Co. v. United States Dep't of Agric., 822 F.2d 162, 163 (D.C. Cir. 1987). It is a violation under the act for a merchant to fail to "make full payment promptly" in any transaction. 7 U.S.C. § 499b(4) (1988). According to Department regulations, "full payment promptly" means full payment within ten days after the produce is accepted. 7 C.F.R. Sec. 46.2(aa) (5) (1990). If the parties choose to use a different payment period, they must put the agreement in writing before entering into the transaction. Id. at Sec. 46.2(aa) (11) (1990). The requirements of the Act have been strictly interpreted, and mitigating factors are routinely rejected. See Finer Foods Sales Co. v. Block, 708 F.2d 774, 781 (D.C. Cir. 1983).

If a party violates the Act, the Secretary may suspend its license. If the violations are "flagrant or repeated," the Secretary may revoke the license and publish the findings. Courts have interpreted the word "repeated" strictly. So interpreted it simply means more than once. Nor does it matter that the purchases may be part of a related group of transactions. See Reese Sales Co. v. Hardin, 458 F.2d 183, 187 (9th Cir. 1972); see also American Fruit Purveyors, Inc. v. United States, 630 F.2d 370, 373 (5th Cir. 1980) (ALJ correct in finding twenty separate violations despite claim of two continuous transactions), cert. denied, 450 U.S. 997 (1981); Maine Potato Growers, Inc. v. Butz, 540 F.2d 518, 524 (1st Cir. 1976) (fourteen violations during same bad crop season still count as repeated violations).

A finding of flagrant or repeated violations may have serious consequences for the parties involved therein. Under the Act, " [e]xcept with the approval of the Secretary, no licensee shall employ any person, or any person who is or has been responsibly connected with any person ... who has been found ... to have committed any flagrant or repeated violation." 7 U.S.C. § 499h(b) (1988). The Secretary may approve such employment after one year, although he may require the party to post a bond. Id.

A. Did the ALJ Err in Considering Evidence Outside the Pleadings?

In making his determination, the ALJ relied on letters from Phillips to the Department in response to the Department's complaint and invoices obtained from JPA files by a Department investigator. The Department had submitted these pieces of evidence as part of its motion to rule on the pleadings. The letters admitted the essential issues; the invoices showed that purchases took place in interstate commerce.

Petitioner objects that the ALJ should not have considered such evidence on a motion to dismiss on the pleadings. He argues that the ALJ should only make factual findings or consider evidence outside the pleadings on a summary judgment motion.

Administrative hearings, however, are not subject to the same strict rules of evidence and procedure as the federal courts. L. Modjeska, Administrative Law: Practice and Procedure, Sec. 4.17, at 142 (1982). For example, the agency may rely on hearsay that would be inadmissible in federal court and has wide latitude in taking judicial notice of facts not in evidence. Id. at 142-43; see also NLRB v. Harrah's Club, 403 F.2d 865, 872-73 (9th Cir. 1968).³  Given the more informal nature of agency proceedings and the fact that petitioner had ample notice of the evidence presented, the ALJ did not exceed his authority in considering the evidence.⁴ 

B. Did the ALJ Violate Department Rules or Due Process in Denying a Hearing If There Were No Material Facts in Dispute?

Department regulations provide that the ALJ may dispense with a hearing if a party fails to file an answer or admits all material facts in the answer. 7 C.F.R. Sec. 1.139 (1990). Petitioner argues that these are the only circumstances under which an ALJ may deny a hearing. Because its formal answer did not admit all of the facts, JPA argues, it should have been granted a hearing.

JPA is wrong. This circuit has held that even when a statute generally prescribes a hearing, no hearing is required where no genuine issue of material fact exists. United States v. Consolidated Mines & Smelting Co., 455 F.2d 432, 453 (9th Cir. 1971) (concerning the Department of the Interior). "In such situations, the rationale is that Congress does not intend administrative agencies to perform meaningless tasks." Id. In addition, Department judicial officers previously have dispensed with a PACA hearing when no genuine issue of material fact existed. See In re Fava & Co., 44 Agric. Dec. 870 (1985) (judgment based on answer and bankruptcy pleadings). The D.C.Circuit agrees. Veg-Mix, Inc. v. United States Dep't of Agric., 832 F.2d 601, 607 (D.C. Cir. 1987) ("Common sense suggests the futility of hearings where there is no factual dispute of substance."). In short, agency procedure does not require a hearing.

Petitioner contends that even if agency regulations and procedures do not require a hearing, petitioner should still be entitled to one under Fifth and Fourteenth Amendment guarantees of due process. These amendments guarantee procedural due process when property interests are implicated, and the Supreme Court has held that property interests are implicated in government licenses. See Bell v. Burson, 402 U.S. 535, 539 (1971).⁵ 

Nonetheless, common sense suggests that the Constitution does not require a hearing when all material issues are resolved on the face of the relevant documents. To argue that the Constitution requires the performance of meaningless tasks trivializes our great charter and erodes its power to command obedience and respect.

D. Were All Material Facts Resolved Such That the ALJ Made a Proper Decision?

JPA, however, argues that all the material facts were not resolved in the Department's favor. At issue is whether the creditors received "full payment promptly." The act requires that the merchant pay both fully and promptly. See 7 U.S.C. § 499b(4) (requiring "full payment promptly"). Mr. Phillips admitted that JPA did not complete the partial payments until more than six months after the business closed. See Petitioner's Opening Brief, Exhibit A at 2. These payments cannot possibly satisfy the regulations requiring payment within ten days unless the parties agree otherwise before the transaction. See 7 C.F.R. Sec. 46.2(aa) (5), (11) (1990).⁶  Thus, JPA failed to pay "promptly." Whether JPA paid "fully" is another question which we need not answer in view of its failure to pay "promptly." However, we note that two circuits have held that even if creditors agree to accept partial payment as a settlement, the merchant still has not "paid fully" under the Act. Finer Foods Sales Co. v. Block, 708 F.2d 774, 782 (D.C. Cir. 1983) (seven percent payment); Marvin Tragash Co. v. United States Dept. of Agric., 524 F.2d 1255, 1258 (5th Cir. 1975) (fifteen percent payment).⁷  This circuit has not considered the issue, and as noted we need not decide it in this case.

The Phillips letters also admit that JPA failed to pay in dozens of transactions. Although JPA disputes the exact number, there is clearly enough evidence to meet this circuit's interpretation of the word "repeated."⁸  Finally, the invoices show that at least some transactions took place in interstate commerce. Thus, no material issues of fact remain, and the ALJ decided properly.⁹ 

The Department points out that because the JPA license has expired, the only direct effect of affirming the ALJ will be to cause publication of the findings. The question of whether Phillips will be barred from the produce industry for some period of time is not at issue in this proceeding.

The Department is correct. The issue of sanctions against Phillips would be raised in a later proceeding. At that time, we suggest that the Secretary consider Mr. Phillips' unusual efforts and integrity in deciding whether to allow him to continue working in the produce industry without interruption.¹⁰ 

The decision of the Department is correct.

AFFIRMED.