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Harry Klein Produce Corp. v. United States Department of Agriculture

decided: October 21, 1987.

HARRY KLEIN PRODUCE CORP., PETITIONER,
v.
UNITED STATES DEPARTMENT OF AGRICULTURE, RESPONDENT



Petition for review of a decision and order of the Secretary of Agriculture finding petition in violation of the accurate accounting and prompt payment provisions of Section 2(4) of the Perishable Agricultural Commodities Act, 7 U.S.C. § 499b(4), and revoking petitioner's license. Petition denied.

Feinberg, Chief Judge, Pierce and Altimari, Circuit Judges.

Author: Pierce

PIERCE, Circuit Judge

Harry Klein Produce Corp. petitions for review of a decision and order of the Secretary of the United States Department of Agriculture finding that it violated the accurate accounting and prompt payment provisions of Section 2(4) of the Perishable Agricultural Commodities Act, 7 U.S.C. § 499b(4). It also challenges the determination that its license should be revoked as a sanction for the violations. Petition denied and enforcement ordered.

BACKGROUND

Harry Klein Produce Corp. ("Klein") is a produce commission merchant licensed under the Perishable Agricultural Commodities Act of 1930 ("PACA"), 7 U.S.C. § 499a et seq. (1982 & Supp. III 1985), and doing business at the Hunts Point Market, in the Bronx, New York. Klein sells produce at wholesale on behalf of various growers and shippers. Some of the sales are made on consignment, while others are made for a joint account, that is, for a profit-sharing joint venture between the commission merchant and a shipper.

In 1984, following a complaint to the United States Department of Agriculture ("USDA") that Klein had failed to account properly for and to remit the proceeds from sales of vegetables that had been consigned to it, the USDA investigated Klein's accounting and payment procedures. In 1985, the USDA filed an administrative complaint against Klein for alleged violations of the accurate accounting and prompt payment provisions of Section 2(4) of the PACA, 7 U.S.C. § 499b(4).

Klein answered the complaint, and an evidentiary hearing was held before an Administrative Law Judge ("ALJ"). At the hearing, evidence was adduced that Klein maintained two sets of books relating to its sales of produce, one of which recorded actual sales volume and prices, while the other recorded the sales volume and prices reported to the shippers; and that out of 70 transactions randomly audited by the USDA, 57 showed discrepancies between actual and reported sales, with consequent improper payments to the shippers involved.

Also, there is record evidence from which the ALJ concluded that in order to make the sales figures more appealing to its shippers, Klein estimated the anticipated aggregate sale proceeds to be received from the sale of particular shipments of produce, and then constructed volume and sales figures for individual transactions that would correspond to the reported aggregates and that would make Klein appear to be a more effective seller than it really was. In so doing, the ALJ concluded, Klein falsified the quantities sold and the prices for which they were sold, failed to disclose produce dumped as unsalable, and falsified figures for produce damages in repacking or returned or rejected by buyers.

Based upon this evidence, the ALJ reported that Klein had wilfully and repeatedly failed to comply with Section 2(4) of the PACA, 7 U.S.C. § 499b(4), and the regulations promulgated thereunder, 7 C.F.R. §§ 46.2(y)(1)-(2), (aa)(1), 46.29, and recommended that Klein's license be revoked. Klein appealed this decision to the Secretary of Agriculture (the "Secretary"), acting through the Judicial Officer, his designated agent with delegated authority. See 7 C.F.R. § 2.35. The Judicial Officer confirmed the findings of the ALJ and ordered the license revoked. Klein petitioned this Court for review of that decision pursuant to 28 U.S.C. § 2342 (1982).

No issue is raised in this case as to whether the Secretary's decision is supported by substantial evidence. Rather, Klein challenges the conclusion that it unlawfully falsified its accountings and instead urges us to find that there is a conflict between the prompt payment and accurate accounting regulations that renders simultaneous compliance impracticable. Klein asserts that in order to comply with the USDA requirement that sale proceeds be remitted to the shippers within ten days of the final sale of the produce, 7 C.F.R. § 46.2(aa)(1), it was forced to adjust the actual sales figures in order to reflect anticipated returns, rejections, and damages, as well as the risk of buyer non-payment. These items, Klein argues, which it was entitled to deduct from the payment remitted, were generally unknown at the time Klein was obliged to remit its payments; and it might take three to six weeks from the date of sale before Klein received payment from its buyers and had complete information and documentation as to losses, offsets, and damages that it was entitled to deduct from the payment due.

Klein asserts that since, as a practical matter, it was unable to comply with the accurate accounting and prompt payment requirements simultaneously, it effectively was forced to choose which one to comply with, and that it therefore chose to make prompt payment. It claims to have based its remittances on its own estimations, calculated with reference to its forty years' experience in the industry, of the probable deductions and other credits that eventually would have to be offset against the anticipated sale proceeds.

Klein also challenges the license revocation on the grounds that the sanction is too severe. It claims that since it was "forced" into noncompliance ...


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